1. Because public goods are
a.
excludable, people have an incentive to be free riders.
b.
excludable, people do not have an incentive to be free riders.
c.
not excludable, people have an incentive to be free riders.
d.
not excludable, people do not have an incentive to be free riders.
2. In deciding whether a good is a public good, one must determine the
a.
incomes of those who benefit from the good.
b.
value of the external benefits that accrue to resource owners.
c.
excludability of the good.
d.
All of the above are correct.
3. Which of the following is not a public good?
a.
b.
c.
d.
4. Which of the following goods is the best example of a public good?
a.
garbage-collection services that are provided by a municipal government
b.
music that is broadcast over the airwaves by a privately-owned FM radio station
c.
electricity that is provided to farmhouses by a rural electric cooperative
d.
cable TV services that are provided by a privately-owned firm that is regulated by the government of the city
in which it operates
5. Without government intervention, public goods tend to be
a.
overproduced and common resources tend to be overconsumed.
b.
overproduced and common resources tend to be underconsumed.
c.
underproduced and common resources tend to be overconsumed.
d.
underproduced and common resources tend to be underconsumed.
6. Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good
that is not excludable and not rival in consumption?
a.
tablet computer, gym membership at a gym that always has plenty of open equipment and classes
b.
tablet computer, national defense
c.
congested nontoll road, national defense
d.
online music subscription, streetlight
7. Which of the following pairs of goods includes a good that is excludable and rival in consumption as well as a good
that is excludable and not rival in consumption?
a.
pizza, cable TV
b.
pair of pants, clean air
c.
clean air, mathematical theorem
d.
basic research, fireworks display
8. The U.S. military defends Jacob from foreign attackers. The fact that Jacob enjoys this protection does not detract from
others Americans’ enjoyment of it. For this reason, we say that national defense is
a.
excludable.
b.
not excludable.
c.
rival in consumption.
d.
not rival in consumption.
9. A sidewalk runs across Jermichael’s front yard near the street. By law, anyone has the right to use the sidewalk. When
Jermichael shovels the sidewalk after a heavy snowstorm,
a.
he is providing a good that is excludable.
b.
he is a free rider.
c.
those who walk on the sidewalk are using a club good.
d.
he is providing a good that is not rival and not excludable.
10. A free rider is a person who
a.
will only purchase a product on sale.
b.
receives the benefit of a good but avoids paying for it.
c.
can produce a good at no cost.
d.
rides public transit regularly.
11. The free-rider problem exists with
a.
public transportation
b.
knowledge.
c.
online music subscriptions.
d.
All of the above are correct.
12. A free-rider problem exists for any good that is not
a.
rival in consumption.
b.
a private good.
c.
free.
d.
excludable.
13. Consider a good for which the number of people who benefit from the good is large and the exclusion of any one
those people is impossible. In this case, the market for this good will likely
a.
be provided by a private firm rather than the government.
b.
have a free-rider problem.
c.
not exist.
d.
be limited to a small number of units of production.
14. Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized.
The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not
have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete’s behavior is an example of
a.
rivalry.
b.
a barrier to entry.
c.
free riding.
d.
Taft-Hartley opposition.
15. Because of the free-rider problem,
a.
private markets tend to undersupply public goods.
b.
the federal government spends too many resources on national defense and not enough resources on medical
research.
c.
fireworks displays have become increasingly dangerous.
d.
poverty has increased.
16. Who among the following is a free rider?
a.
Ernie listens to National Public Radio, but does not contribute to any fundraising efforts.
b.
Bert takes the commuter rail to work, but he purchases the discounted monthly passes rather than buying
tickets each day.
c.
Grover sends his 5 children to a private school rather than to the public school in his neighborhood.
d.
Oscar goes to Elmo’s house to watch a football game on the local television channel.
17. The free-rider problem
a.
forces the supply of a public good to exceed its demand.
b.
results in common resources becoming club goods.
c.
explains why many local governments supply public goods.
d.
results in public goods becoming private goods.
18. The phenomenon of free riding is most closely associated with which type of good?
a.
private goods
b.
club goods
c.
common resources
d.
public goods
19. When good X is produced, some people benefit. A free-rider problem arises when
a.
the number of people who benefit is small and it is impossible to prevent anyone from benefiting.
b.
the number of beneficiaries is small and it is possible to prevent some people from benefiting.
c.
the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.
d.
the number of beneficiaries is large and it is possible to prevent some people from benefiting.
20. Market failure associated with the free-rider problem is a result of
a.
a problem associated with pollution.
b.
benefits that accrue to those who don’t pay.
c.
losses that accrue to providers of the product.
d.
market power.
21. When a free-rider problem exists,
a.
the market will devote too few resources to the production of the good.
b.
the cost of the good will always be more than the benefit of the good.
c.
the good will not be produced.
d.
entrepreneurs will eventually find a way to make free-riders pay their share.
22. A free rider problem arises when
a.
there are very few beneficiaries and exclusion of any one of them is possible.
b.
there are many beneficiaries and exclusion of any one of them is possible.
c.
there are many beneficiaries and exclusion of any one of them is impossible.
d.
there are very few beneficiaries and they all try to use the good simultaneously.
23. On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient
for such a display to be produced. Which of the following statements is correct?
a.
The lack of a fireworks display in Yankeeville arises because of an externality.
b.
The lack of a fireworks display in Yankeeville is a case of market failure.
c.
In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made
decisions that were privately rational but socially inefficient.
d.
All of the above are correct.
24. On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient
for such a display to be produced. Which of the following statements is correct?
a.
The lack of a fireworks display in Yankeeville arises because of an externality.
b.
The lack of a fireworks display in Yankeeville arises because the free-rider problem does not apply to goods
such as fireworks displays.
c.
In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made
decisions that were privately irrational.
d.
All of the above are correct.
25. Public schools, parks, libraries, and roads are paid for largely through tax revenue because
a.
society finds them so valuable that citizens are happy to pay for their full cost.
b.
these goods create a free-rider problem.
c.
if they were funded privately, too many of these goods would be produced.
d.
All of the above are correct.
26. Suppose that everyone prefers to live in a society without poverty. Further suppose that some private charities are
successful in reducing poverty. People who do not contribute to the charities
a.
receive no external benefit from private antipoverty programs.
b.
decrease the reliance of individuals on antipoverty programs.
c.
can free ride on the generosity of others.
d.
are most likely to be in favor of government-sponsored programs.
27. Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens
proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all
50,000 residents revealed that the pool would be worth $50 to each of them. Because the cost to build the swimming pool
is only $1,000,000, Manager Miller arranges to have the pool built. Everyone in town enjoys the pool, but when Manager
Miller asks for donations to pay for the pool, he only collects $250,000. Manager Miller soon realizes that
a.
the survey was conducted improperly.
b.
the cost of the pool exceeded the social benefits.
c.
the pool is a club good.
d.
most residents of the town are probably free-riders at the pool.
28. Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens
proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all
50,000 residents revealed that the pool would be worth $50 to each of them. The cost to build the swimming pool is
$1,000,000. Which of the following is the most efficient option?
a.
The pool should be built and paid for with donations collected from residents, as these donations should more
than cover the cost of the pool.
b.
The pool should be built and paid for by the town government and paid for with a tax on the residents because
all residents would benefit from it but some residents would not donate if they were asked.
c.
The pool should be built and paid for by the wealthiest ten percent of the residents.
d.
The pool should not be built because the social value does not exceed the cost.
29. Private markets usually fail to provide lighthouses because
a.
lighthouses cost too much to build relative to their benefits.
b.
government intervention makes it hard for private lighthouse owners to compete in the market.
c.
ship captains have incentives to use lighthouses without paying.
d.
lighthouses are valued very little by ship captains these days.
30. Most lighthouses are operated by the government because
a.
of the free-rider problem.
b.
lighthouses are no longer valued by society.
c.
most lighthouses are only tourist attractions in state and national parks.
d.
shipping companies would not be able to afford maintenance fees for lighthouses.
31. A lighthouse is typically considered to be a public good because
a.
the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.
b.
there is rarely another lighthouse nearby to provide competition.
c.
a nearby port authority cannot avoid paying fees to the lighthouse owner.
d.
all passing ships are able to enjoy the benefits of the lighthouse without paying.
32. A lighthouse might be considered a private good if
a.
there is a second lighthouse nearby, thus preventing a monopoly.
b.
the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse.
c.
ships are able to enjoy the benefits of the lighthouse without paying for the benefit.
d.
a nearby port authority is able to avoid paying any fees to the lighthouse owner.
33. Which of the following is an example of the free-rider problem?
a.
Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pays the full cost
of the care.
b.
Alfred receives a free lunch from the local “Meals on Wheels” program because of his low monthly income.
Yet his next door neighbor, Alice, is not eligible for the free lunch.
c.
Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce,
and Buster’s barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free
protection from burglars because of Buster’s barking.
d.
Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having
a buy one, get one free sale.
34. National defense is a classic example of a public good because
a.
there is no market for private security services.
b.
it is difficult to exclude people from receiving the benefits from national defense once it is provided.
c.
everyone agrees that some level of national defense is important, but only the government knows the optimal
amount.
d.
there are no private firms willing to supply defense goods such as tanks and weapons.
35. The national defense of the United States is not rival because
a.
my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United
States.
b.
my enjoyment of the national defense does diminish your enjoyment of the national defense of the United
States.
c.
once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this
defense.
d.
once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this
defense.
36. The national defense of the United States is not excludable because
a.
my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United
States.
b.
my enjoyment of the national defense does diminish your enjoyment of the national defense of the United
States.
c.
once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this
defense.
d.
once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this
defense.
37. It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are
produced by private firms. We can conclude that
a.
resources would be used more efficiently if the government produced the weapons.
b.
resources would be used more efficiently if private firms provided national defense.
c.
weapons are rival in consumption and excludable, but national defense is not rival in consumption and not
excludable.
d.
national defense is rival in consumption and excludable, but weapons are not rival in consumption and not
excludable.
38. National defense is provided by the government because
a.
it is impossible for private markets to produce public goods.
b.
products provided by the government are produced more efficiently.
c.
free-riders make it difficult for private markets to supply the socially optimal quantity.
d.
public goods increase government revenues.
39. Even economists who advocate small government agree that
a.
national defense is a public good and that the government should provide it.
b.
national defense is a common resource and that the government should provide it.
c.
national defense is a public good, but many of them believe that it should be provided by private firms rather
than by the government.
d.
national defense is a common resource, but many of them believe that it should be provided by private firms
rather than by the government.
40. Knowledge is an example of a
a.
public good.
b.
private good.
c.
common resource.
d.
club good.
41. Knowledge that is patented is a
a.
public good, whereas knowledge that is not patented is a common resource.
b.
private good, whereas knowledge that is not patented is a club good.
c.
common resource, whereas knowledge that is not patented is a private good.
d.
club good, whereas knowledge that is not patented is a public good.
42. The difference between specific knowledge and general knowledge is that
a.
the creation of general knowledge is usually more profitable for the creator.
b.
specific knowledge is excludable, while general knowledge is not excludable.
c.
general knowledge is excludable, while specific knowledge is not excludable.
d.
general knowledge is rival in consumption, while specific knowledge is not rival in consumption.
43. Which of the following is an example of general knowledge, as opposed to specific knowledge that can be patented?
a.
the invention of a longer-lasting battery
b.
a mathematical theorem
c.
a method for constructing a high-performance microchip
d.
the chemical formula for an adhesive
44. Which of the following is not a reason why government agencies subsidize basic research?
a.
The private market devotes too few resources to basic research.
b.
The general knowledge developed through basic research can be used without charge.
c.
The social benefit of additional knowledge is perceived to be greater than the cost of the subsidies.
d.
The government wants to attract the brightest researchers away from private research firms.
45. Which of the following statements is not correct?
a.
Medical research can be an example of a public good.
b.
The private market will tend to undersupply public goods.
c.
The free-rider problem occurs when a good is nonexcludable.
d.
All goods provided by the government are public goods.
46. Private companies will invest in medical research if
a.
they will produce general knowledge.
b.
they will produce a specific product for which they may receive a patent.
c.
there is no government intervention in the market for medical products.
d.
others will benefit from their discoveries.
47. The U.S. patent system
a.
makes general knowledge excludable.
b.
makes specific, technical knowledge excludable.
c.
creates a disincentive to invent.
d.
Both a and b are correct.
48. It should not be surprising if the public sector fails to pay for the right amount or right kinds of basic research because
a.
basic research is not a public good.
b.
the benefits of basic research are hard to measure.
c.
members of Congress usually have little expertise in science.
d.
Both b and c are correct.
49. Advocates of antipoverty programs claim that
a.
the government has good information about what people are willing to pay to eliminate poverty.
b.
fighting poverty is a public good.
c.
private sector will incur higher costs than the public sector for these programs.
d.
All of the above are correct.
50. Advocates of antipoverty programs believe that fighting poverty
a.
can make everyone better off.
b.
is most successfully accomplished by charities.
c.
is most efficiently accomplished by the market.
d.
reduces the well-being of tax payers.
51. If everyone benefits from helping the poor,
a.
government intervention cannot improve social well-being.
b.
eliminating taxes aimed at redistributing income will make rich people better off.
c.
taxing the wealthy to raise living standards of the poor can potentially make everyone better off.
d.
private markets can adequately provide charity programs to help the poor, despite free-rider problems.
52. Which of the following is a disadvantage of government provision of a public good?
a.
The government lacks information about what people are willing to pay for the good.
b.
The government does not provide enough of any public good.
c.
The private sector can provide all public goods at a lower cost.
d.
None of the above is a disadvantage.
53. Which of the following is not a characteristic of a public good?
a.
It is not excludable.
b.
It is not diminished or depreciated as additional people consume the good.
c.
Its benefits cannot be withheld from anyone.
d.
Because it is a free good, there is no opportunity cost.
54. To achieve the optimal provision of public goods, the
a.
market should be allowed to arrive at an equilibrium without government intervention.
b.
government must limit the provision of the goods.
c.
government must tax producers of the goods.
d.
government must either provide the goods or subsidize their production.
55. Producers have little incentive to produce a public good because
a.
the social benefit is less than the private benefit.
b.
the social benefit is less than the social cost.
c.
there is a free-rider problem.
d.
there is a Tragedy of the Commons.
56. The government provides public goods because
a.
private markets are incapable of producing these types of goods.
b.
free-riders make it difficult for private markets to supply the socially optimal quantity.
c.
markets are always better off with some government oversight.
d.
external benefits will accrue to private producers.
57. Too few resources are devoted to the creation of knowledge because profit-seeking firms
a.
undervalue knowledge in their pursuit of revenues.
b.
overuse their patents.
c.
tend to free-ride on the knowledge that others have developed.
d.
tend to rely on existing employee knowledge.
58. As with many public goods, determining the appropriate level of government support for the production of general
knowledge is difficult because
a.
patents correct for an unknown portion of the externality.
b.
benefits are hard to measure.
c.
members of Congress are often experts in the sciences.
d.
the costs always exceed the benefits.
59. Which of the following is a disadvantage of government provision of a public good such as national defense?
(i)
The government does not know the exact willingness of consumers to pay for the
public good.
(ii)
The free-rider problem is more likely to occur when the government provides a
public good than when the private sector provides a public good.
(iii)
Taxpayers do not agree on the optimal quantity of the public good that the
government should provide.
a.
(i) only
b.
(i) and (ii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
60. The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and
operates on both tuition and private donations. Although every resident places value on having an educated community,
the school’s revenues have suffered lately due to a large decline in private donations from the elderly population. Since the
benefit that each citizen receives from having an educated community is a public good, which of the following would not
be correct?
a.
The free-rider problem causes the private market to undersupply education to the community.
b.
The government can potentially help the market reach a socially optimal level of education.
c.
A tax increase to pay for education could potentially make the community better off.
d.
The private market is the best way to supply education.
Table 11-1
Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to
determine how large, in acres, they should build the public park. The table below shows each resident’s willingness to pay
for each acre of the park.
Acres
Sophia
Amber
Cedric
1
$10
$24
$6
2
8
18
5
3
6
14
4
4
3
8
3
5
1
6
2
6
0
4
1
7
0
2
0
61. Refer to Table 11–1. Suppose the cost to build the park is $24 per acre. How many acres should the park be to
maximize total surplus from the park in Springfield?
a.
1 acres
b.
2 acres
c.
3 acres
d.
4 acres
62. Refer to Table 11–1. Suppose the cost to build the park is $9 per acre. How large should the park be to maximize total
surplus from the park in Springfield?
a.
2 acres
b.
3 acres
c.
4 acres
d.
5 acres
63. Refer to Table 11–1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the
cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on
their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the
majority of residents would vote “yes?”
a.
0 acres
b.
1 acre
c.
2 acres
d.
3 acres
64. Refer to Table 11–1. Suppose the cost to build the park is $9 per acre and that the residents have agreed to split the