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Chapter 11/Public Goods and Common Resources ❖ 21
49. 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.
50. 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.
51. 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.
52. 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.
22 ❖ Chapter 11/Public Goods and Common Resources
Table 11-1
Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. 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
Mary
Bill
Tricia
1
$14
$18
$30
2
10
14
26
3
6
10
22
4
4
6
18
5
2
3
14
6
0
1
10
7
0
0
6
53. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre. How many acres should the park be
to maximize total surplus from the park in Anywhere?
a.
2 acres
b.
3 acres
c.
4 acres
d.
5 acres
54. Refer to Table 11-1. Suppose the cost to build the park is $16 per acre. How large should the park be to
maximize total surplus from the park in Anywhere?
a.
2 acres
b.
3 acres
c.
4 acres
d.
5 acres
55. Refer to Table 11-1. Suppose the cost to build the park is $33 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
56. Refer to Table 11-1. Suppose the cost to build the park is $15 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.
1 acre
b.
2 acres
c.
3 acres
d.
4 acres
Chapter 11/Public Goods and Common Resources ❖ 23
57. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have agreed to
split the cost of building the park equally. To maximize his own surplus, how many acres would Bill like An-
ywhere to build?
a.
0 acres
b.
1 acre
c.
2 acres
d.
3 acres
58. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have agreed to
split the cost of building the park equally. If the residents decide to build a park with size equal to the number
of acres that maximizes total surplus from the park, how much total surplus will Mary receive?
a.
-$6
b.
-$3
c.
$3
d.
$10
59. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have agreed to
split the cost of building the park equally. If the residents decide to build a park with size equal to the number
of acres that maximizes total surplus from the park, how much total surplus will Bill receive?
a.
-$2
b.
$2
c.
$9
Table 11-2
Consider a small town with only three families, the Johnson family, the Marshall family, and the Walker
family. The town does not currently have any streetlights so it is very dark at night. The three families are
considering putting in streetlights on Main Street and are trying to determine how many lights to install. The
table below shows each family’s willingness to pay for each streetlight.
Number of
Streetlights
The Johnson Family
The Marshall Family
The Walker
Family
1
$170
$240
$210
2
130
190
200
3
80
130
170
4
20
65
120
5
0
25
50
6
0
0
10
60. Refer to Table 11-2. Suppose the cost to install each streetlight is $450. How many streetlights should the
town install to maximize total surplus from the streetlights?
a.
1 streetlight
b.
2 streetlights
c.
3 streetlights
d.
4 streetlights
24 ❖ Chapter 11/Public Goods and Common Resources
61. Refer to Table 11-2. Suppose the cost to install each streetlight is $180. How many streetlights should the
town install to maximize total surplus from the streetlights?
a.
1 streetlight
b.
2 streetlights
c.
3 streetlights
d.
4 streetlights
62. Refer to Table 11-2. Suppose the cost to install each streetlight is $450 and the families have agreed to split
the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing
their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the
greatest number of streetlights for which the majority of families would vote “yes?”
a.
1 streetlight
b.
2 streetlights
c.
3 streetlights
d.
4 streetlights
63. Refer to Table 11-2. Suppose the cost to install each streetlight is $180 and the families have agreed to split
the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing
their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the
greatest number of streetlights for which the majority of families would vote “yes?”
a.
1 streetlight
b.
2 streetlights
c.
3 streetlights
d.
4 streetlights
64. Refer to Table 11-2. Suppose the cost to install each streetlight is $180 and the families have agreed to split
the cost of installing the streetlights equally. To maximize their own surplus, how many streetlights would the
Johnson’s like the town to install?
a.
0 streetlights
b.
1 streetlight
c.
2 streetlights
d.
3 streetlights
65. Refer to Table 11-2. Suppose the cost to install each streetlight is $300 and the families have agreed to split
the cost of installing the streetlights equally. To maximize their own surplus, how many streetlights would the
Marshall’s like the town to install?
a.
0 streetlights
b.
1 streetlight
c.
2 streetlights
d.
3 streetlights
Chapter 11/Public Goods and Common Resources ❖ 25
66. Refer to Table 11-2. Suppose the cost to install each streetlight is $450 and the families have agreed to split
the cost of installing the streetlights equally. To maximize their own surplus, how many streetlights would the
Walker’s like the town to install?
a.
0 streetlights
b.
1 streetlight
c.
2 streetlights
d.
3 streetlights
Table 11-3
This table describes the defense demands for three equal sized groups of people in Nirvanaville. The second,
third, and fourth column shows the quantity that a group will demand for a given price (the first column).
Price
Group #1
Group #2
Group #3
$14
0
0
0
$12
0
0
3
$10
0
3
6
$ 8
3
6
13
$ 6
6
13
22
$ 4
13
22
33
$ 2
22
33
44
$ 0
33
44
58
67. Refer to Table 11-3. What is the value of the 33rd unit of national defense in Nirvanaville?
a.
$0
b.
$2
c.
$4
d.
$6
68. Refer to Table 11-3. What is the value of the 13th unit of national defense in Nirvananville?
a.
$8
b.
$14
c.
$18
d.
$24
69. Refer to Table 11-3. If the marginal cost of national defense is constant at $12 per unit, what is the efficient
level of national defense to provide?
a.
3 units
b.
13 units
c.
22 units
d.
33 units
26 ❖ Chapter 11/Public Goods and Common Resources
70. Refer to Table 11-3. If the marginal cost of national defense is constant at $24 per unit, what is the efficient
level of national defense to provide?
a.
3 units
b.
6 units
c.
13 units
d.
22 units
Table 11-4
There are four homes along Belmont Circle, which surrounds a small plot of land. The land currently has no
trees, and the 4 homeowners -- Adams, Benitez, Chen, and Davis -- are considering the idea of contributing to
a pool of money that will be used to plant up to 4 trees. The table represents their willingness to pay, that is,
the maximum amount that each homeowner is willing to contribute toward each tree.
Adams
Benitez
Chen
Davis
First tree
$100
$115
$120
$90
Second tree
50
110
110
50
Third tree
20
100
80
30
Fourth tree
10
50
40
0
71. Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be planted to max-
imize the total surplus of the four homeowners?
a.
1
b.
2
c.
3
d.
4
72. Refer to Table 11-4. Suppose the cost to plant each tree is $90. How many trees should be planted to max-
imize the total surplus of the four homeowners?
a.
1
b.
2
c.
3
d.
4
73. Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed to split
all tree-planting costs equally. Which homeowner(s) would be opposed to planting any trees?
a.
only Davis
b.
only Adams and Davis
c.
only Adams, Benitez, and Davis
d.
Adams, Benitez, Chen, and Davis
Chapter 11/Public Goods and Common Resources ❖ 27
74. Refer to Table 11-4. Suppose the cost to plant each tree is $120 and the 4 homeowners have agreed to split
all tree-planting costs equally. How many trees would Adams prefer to plant?
a.
0
b.
1
c.
2
d.
3
75. Refer to Table 11-4. Suppose the cost to plant each tree is $220 and the 4 homeowners have agreed to split
all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 3 trees?
a.
only Benitez
b.
only Benitez and Chen
c.
only Benitez, Chen, and Davis
d.
Adams, Benitez, Chen, and Davis
76. Refer to Table 11-4. Suppose the cost to plant each tree is $340 and the 4 homeowners have agreed to split
all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 1 tree?
a.
only Benitez
b.
only Benitez and Chen
c.
only Benitez, Chen, and Davis
Table 11-5
A small strip mall contains four retail stores, and crime has recently been on the increase in the neighborhood
of the strip mall. The owners of the four stores — Stores A, B, C, and D — are considering contributing to a
pool of money that will be used to hire up to 4 security guards. The table represents their willingness to pay,
that is, the maximum amount that each store owner is willing to contribute, per day, to hire each security
guard.
A
B
C
D
First guard
$35
$40
$20
$50
Second guard
25
35
15
40
Third guard
15
30
10
30
Fourth guard
5
25
5
20
77. Refer to Table 11-5. Suppose the cost to hire each individual guard is $70 per day. How many guards should
be hired to maximize the total surplus of the four store owners?
a.
1
b.
2
c.
3
d.
4
28 ❖ Chapter 11/Public Goods and Common Resources
78. Refer to Table 11-5. Suppose the cost to hire each individual guard is $100 per day. How many guards
should be hired to maximize the total surplus of the four store owners?
a.
1
b.
2
c.
3
d.
4
79. Refer to Table 11-5. Suppose the cost to hire each individual guard is $130 per day. How many guards
should be hired to maximize the total surplus of the four store owners?
a.
1
b.
2
c.
3
d.
4
80. Refer to Table 11-5. Suppose the cost to hire each individual guard is $100 per day. Then total surplus for
the 4 store owners is
a.
$45 if 1 guard is hired.
b.
$60 if 2 guards are hired.
c.
$45 if 3 guards are hired.
d.
All of the above are correct.
81. Refer to Table 11-5. Suppose the cost to hire each individual guard is $75 per day. Then total surplus for the
4 store owners is
a.
$75 if 1 guard is hired.
b.
$110 if 2 guards are hired.
c.
$130 if 3 guards are hired.
d.
$105 if 4 guards are hired.
82. Refer to Table 11-5. Suppose the cost to hire each guard is $100 per day and the 4 store owners have agreed
to split the costs of hiring guards equally. Which store owner(s) would be opposed to hiring any guards?
a.
only the owner of Store C
b.
only the owners of Stores A and C
c.
only the owners of Stores A, B, and C
d.
All 4 store owners would be opposed to hiring any guards.
Chapter 11/Public Goods and Common Resources ❖ 29
83. Refer to Table 11-5. Suppose the cost to hire each guard is $120 per day and the 4 store owners have agreed
to split the costs of hiring guards equally. How many guards would the owner of Store A prefer to hire?
a.
0
b.
1
c.
2
d.
3
84. Refer to Table 11-5. Suppose the cost to hire each guard is $120 per day and the 4 store owners have agreed
to split the costs of hiring guards equally. How many guards would the owner of Store C prefer to hire?
a.
0
b.
1
c.
2
d.
3
85. Refer to Table 11-5. Suppose the cost to hire each individual guard is $90 per day and the 4 store owners
have agreed to split the costs of hiring guards equally. Which of the following statements is correct?
a.
The owner of Store A would prefer to hire 3 guards.
b.
The owner of Store B would prefer to hire 4 guards.
c.
The owner of Store C would prefer to hire 1 guard.
d.
All of the above are correct.
86. Refer to Table 11-5. Suppose the cost to hire each individual guard is $110 per day and the 4 store owners
have agreed to split the costs of hiring guards equally. Which of the following statements is correct?
a.
The owner of Store A would prefer to hire 2 guards.
b.
The owner of Store C would prefer to hire 1 guard.
c.
The owners of Stores B and D would prefer to hire 3 guards.
d.
All of the above are correct.
87. If the government decides to build a new highway, the first step would be to conduct a study to determine the
value of the project. The study is called a
a.
fiscal analysis.
b.
monetary analysis.
c.
welfare analysis.
d.
cost-benefit analysis.
30 ❖ Chapter 11/Public Goods and Common Resources
88. Suppose the cost to erect a tornado siren in a small town is $20,000. In addition, suppose the value of a human
life is $10 million. By what percentage would the siren need to reduce the risk of a fatality for the benefits of
the siren to exceed the costs of the siren?
a.
By at least 0.2 percentage points.
b.
By at least 0.5 percentage points.
c.
By at least 2 percentage points.
d.
By at least 5 percentage points.
89. Studies that compare the wages of more risky and less risky occupations estimate the value of a human life to
be about
a.
$1 million.
b.
$5 million.
c.
$10 million.
d.
$20 million.
90. Which of the following is not a reason that the findings of cost-benefit analyses on public goods are only
rough approximations?
a.
Without prices, it is difficult to be sure how much people really value a good.
b.
Analysts can't be sure that the respondents to surveys are telling the truth.
c.
Analysis must include not only the cost of building the project but also the cost of maintenance, if
any.
d.
People value goods differently if they are publicly provided rather than privately provided.
91. Which of the following is an approach used by economists to calculate the value of a human life?
a.
comparing the salaries of people who live in cities with more traffic lights to those who live in
cities with fewer traffic lights
b.
comparing the wages of more risky occupations to less risky occupations
c.
comparing the costs of vehicles with safety features such as side-impact airbags to those without
such safety features
d.
All of the above are correct.
92. Antonio, Vanessa, and Norah all enjoy looking at flowers blooming in gardens in their neighborhood. The
neighborhood association is considering planting a flower garden around the sign at the entrance to the neigh-
borhood. Antonio values the garden at $25, Vanessa at $15, and Norah at $30. The flowers and labor for the
garden cost $55. What should the neighborhood association do?
a.
Plant the garden because people like flowers.
b.
Plant the garden because the benefits outweigh the costs.
c.
Do not plant the garden because the costs outweigh the benefits.
d.
Do not plant the garden in order to prevent the Tragedy of the Commons problem of overuse.
Chapter 11/Public Goods and Common Resources ❖ 31
93. Suppose that the Town of Bumbletree is considering hiring an additional police officer. The reduction in crime
is estimated to be worth $10 for each of Bumbletree’s 5,000 residents. What should the city do?
a.
Hire the police officer because additional safety is priceless.
b.
Hire the police officer if the cost of the new officer is less than $50,000.
c.
Do not hire the police officer because the costs exceed the benefits.
d.
Hire the police officer only if the benefit to the residents exceeds $50,000.
94. Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail
will cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is ex-
pected that the guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should
the county do?
a.
Install the guard rail because safety is priceless.
b.
Install the guard rail because the benefits exceed the costs.
c.
Do not install the guard rail because the costs exceed the benefits.
d.
Do not install the guard rail at any cost because drivers can purchase private insurance for their
vehicles.
95. Economists think that the best way to determine the value of a human life is to
a.
evaluate the value of a person’s expected earnings in the labor market.
b.
evaluate the risks people are willing to take and what they would have to be paid to take them.
c.
determine a person’s accumulated wealth at the time of death.
d.
do nothing; human life is priceless.
96. A cost-benefit analysis of a highway is difficult to conduct because analysts
a.
cannot estimate the explicit cost of a project that has not been completed.
b.
are unlikely to have access to costs on similar projects.
c.
are not able to consider the opportunity cost of resources.
d.
will have difficulty estimating the value of the highway.
32 ❖ Chapter 11/Public Goods and Common Resources
97. Cost-benefit analysts often encounter the problem that those who would benefit from government provision of
a public good tend to
a.
overstate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to overstate the costs they would incur from the public
good.
b.
overstate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to understate the costs they would incur from the
public good.
c.
understate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to overstate the costs they would incur from the public
good.
d.
understate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to understate the costs they would incur from the
public good.
98. Simply asking people how much they value a highway is not a reliable way of measuring the benefits and
costs because
a.
those who stand to gain have an incentive to tell the truth.
b.
those who stand to lose have an incentive to exaggerate their true costs.
c.
answers to the survey questions will always be downwardly biased.
d.
not everyone asked will be using the highway.
99. The greatest difficulty with cost-benefit analysis of a public project is determining
a.
whether government revenue is sufficient to cover the cost of the project.
b.
which contractor should be awarded the project.
c.
the cost of the project.
d.
the value or benefit of the project.
100. Each of the following explains why cost-benefit analysis is difficult except
a.
there is no price with which to judge the value of a public good.
b.
surveys are often biased and unreliable.
c.
it is difficult to identify all factors that influence costs and benefits of public goods.
d.
government projects rarely have sufficient funding to complete them on time.
101. Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the
flow of traffic in an effort to increase safety on a given highway. Which of the following statements is correct?
a.
The benefits are usually easier to measure than the costs.
b.
Because human life is priceless, any measure to increase traffic safety would generate benefits that
outweigh the costs.
c.
Estimating the value of a human life is difficult but necessary in order to evaluate the proposal.
d.
Both a and b are correct.
Chapter 11/Public Goods and Common Resources ❖ 33
102. In a cost-benefit analysis, the value of a human life is sometimes calculated on the basis of
a.
the risks that a person voluntarily exposes herself to in her job and/or recreational choices.
b.
the value of each individual's assets.
c.
the belief that human life is priceless.
d.
the amount of resources required to adequately sustain life.
103. Cost-benefit analysis is important to determine the role of government in our economy because
a.
the government should provide all goods for which the benefits exceed the costs.
b.
cost-benefit analysis identifies the possible gains to society from government provision of a
particular good.
c.
markets for private goods cannot effectively assign costs and benefits.
d.
cost-benefit analysis is the best tool to identify market failures.
104. Before considering any public project, the government should
(i)
compare the total cost and total benefits of the project.
(ii)
conduct a cost-benefit analysis.
(iii)
infer that citizens who vote for a project are willing to pay equally for it.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
105. To increase safety at a bad intersection, you must decide whether to install a traffic light in your hometown at
a cost of $25,000. If the traffic light reduces the risk of fatality by 0.3 percent, and the value of a human life is
estimated to be $10 million, you should
a.
install the light because the expected benefit of $30,000 is greater than the cost.
b.
install the light because the expected benefit of $25,000 is greater than the cost.
c.
not install the light because the expected benefit of $25,000 is only equal to the cost.
d.
not install the light because the expected benefit of $3,000 is less than the cost.
106. A town engineer comes to the city council with a proposal to install a traffic light at a certain intersection that
currently has a stop sign. The benefit of the traffic light is increased safety because the light will reduce the
incidence of fatal traffic accidents by 50 percent per year. Which of the following statements is correct?
a.
The city council should vote to install the traffic light because the benefits will outweigh the costs.
b.
The city council should carefully evaluate the benefits of reduced fatalities against only the explicit
costs of the light.
c.
The city council should carefully evaluate the benefits of reduced fatalities against the costs of the
light and of the extra time that drivers will spend waiting for a green light.
d.
The costs will invariably outweigh the benefits.
34 ❖ Chapter 11/Public Goods and Common Resources
107. Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The walkway is
expected to reduce the risk of fatality by 3 percent, and the cost of a human life is estimated at $10 million.
The town should
a.
install the walkway because the estimated benefit is twice the cost.
b.
install the walkway because the estimated benefit equals the cost.
c.
not install the walkway, since the cost is twice the estimated benefit.
d.
install the walkway, since the cost of even a single life is too great not to take action.
108. Suppose that the cost of installing an overhead pedestrian walkway in a college town is $150,000. The walk-
way is expected to reduce the risk of fatality by 1.5 percent, and the cost of a human life is estimated at $10
million. The town should
a.
install the walkway because the estimated benefit is twice the cost.
b.
be indifferent between installing and not installing the walkway because the estimated benefit
equals the cost.
c.
not install the walkway, since the cost is twice the estimated benefit.
d.
install the walkway, since the cost of even a single life is too great not to take action.
109. When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis
a.
are forced to pursue any project in which a single human life is saved.
b.
are likely to make decisions that optimally allocate society's scarce resources.
c.
would not pursue any public project that would not save human life.
d.
would be forced to rely on private markets to provide public goods.
110. Suppose that you want to put on a fireworks display in your hometown of 1,000 people this July. The cost of
the display is $6,000, and each person values the display at $5. After a month, you have only sold 50 tickets at
$5 each. The result is that
a.
the local government should put on the display, but you should not.
b.
you should still put on the display, but the local government should not.
c.
neither you nor the local government should put on the display.
d.
either you or the local government should put on the display.
111. When the value of a human life is calculated according to the economic contribution a person makes to society
(as reflected in her income-earning potential), the troubling implication is that
a.
it is possible for a retired or disabled person to have no value to society.
b.
economists are more valuable than entrepreneurs.
c.
retired people who volunteer in their communities are more valuable than physicians.
d.
all workers have equal value.
Chapter 11/Public Goods and Common Resources ❖ 35
112. Suppose a human life is worth $10 million. Installing a better lighting system in the city park would reduce the
risk of someone being murdered there from 2.3 to 1.8 percent over the life of the system. The city should in-
stall the new lighting system if its cost does not exceed
a.
$50,000.
b.
$180,000.
c.
$230,000.
d.
$500,000.
113. The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker
dying from exposure to a hazardous chemical used in the production of diet soft drinks is 0.0005. The cost of
imposing a regulation that would ban the chemical is $18 million. If the value of a human life is equal to $10
million, how many people must the policy affect in order for the benefits to exceed the costs?
a.
301
b.
601
c.
1801
d.
3601
114. The Occupational Safety and Health Administration (OSHA) has determined that 100 workers are exposed to
a hazardous chemical used in the production of diet soft drinks. The cost of imposing a regulation that would
ban the chemical is $10 million. OSHA has calculated that each person saved by this regulation has a value
equal to $10 million. If the benefits are exactly equal to the costs, what probability is OSHA using to assess
the likelihood of a fatality from exposure to this chemical?
a.
0.001
b.
0.01
c.
0.1
d.
1.0
115. In a certain city, the government is considering acquiring some land and turning it into a park (without any
fences or gates). In an attempt to determine the extent to which residents of the city would value the park, res-
idents are asked to fill out a questionnaire. Which of the following is correct?
a.
On the questionnaire, some residents are likely to exaggerate the value they associate with the park.
b.
On the questionnaire, some residents are likely to exaggerate the costs they associate with the park.
c.
The use of such a questionnaire in cost-benefit analysis is likely to produce only rough
approximations of residents’ perceptions of the costs and benefits of a park.
d.
All of the above are correct.
36 ❖ Chapter 11/Public Goods and Common Resources
COMMON RESOURCES
1. Which of the following statements is not correct?
a.
Environmental degradation is an example of the Tragedy of the Commons.
b.
Cost-benefit analysis is an important tool that economists use to evaluate the benefits of providing a
public good.
c.
Some goods, such as lighthouses, may be either private or public goods.
d.
The free-rider problem prevents governments from supplying public goods.
2. Which of the following is not a typical solution to the “Tragedy of the Commons?”
a.
taxing the use of the common resource
b.
turning the common resource into a club good
c.
turning the common resource into a private good
d.
regulating the use of the common resource
3. Neither public goods nor common resources are
a.
excludable, but only public goods are not rival in consumption.
b.
excludable, but only common resources are not rival in consumption.
c.
rival in consumption, but only public goods are not excludable.
d.
rival in consumption, but only common resources are not excludable.
4. Which of the following is not a way for the government to solve the problem of excessive use of common re-
sources?
a.
regulation
b.
taxes
c.
turning the common resource into a public good
d.
turning the common resource into a private good
5. Which of the following is not a common resource?
a.
congested roads
b.
clean water
c.
wild gorillas
d.
a fireworks display
Chapter 11/Public Goods and Common Resources ❖ 37
6. Which of the following is not a common resource?
a.
clean air
b.
clean water
c.
open grazing land
d.
national defense
7. Which of the following is most likely to face extinction?
a.
dogs living as pets in households
b.
dairy cows living on farms and producing milk
c.
bald eagles living in zoos
d.
tigers living in the wild
8. Which of the following quotations illustrates the Tragedy of the Commons?
a.
“A bird in the hand is worth two in the bush.”
b.
“The only difference between the rich and other people is that the rich have more money.”
c.
“What is common to many is taken least care of, for all men have greater regard for what is their
own than for what they possess in common with others.”
d.
“Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is
30 has no head.”
9. Which parable describes the problem of wild animals that are hunted to the point of extinction?
a.
Coase theorem
b.
Tragedy of the Commons
c.
Cost-benefit analysis
d.
Clean Air Act
10. An overcrowded beach is an example of
a.
a positive externality.
b.
a Tragedy of the Commons.
c.
an environmentally inefficient allocation of resources.
d.
an economically unfair allocation of resources.
11. One way to eliminate the Tragedy of the Commons is to
a.
increase law enforcement in public areas.
b.
limit access to the commons.
c.
increase access to the commons.
d.
decrease taxes.
38 ❖ Chapter 11/Public Goods and Common Resources
12. The Tragedy of the Commons results when a good is
a.
rival in consumption and not excludable.
b.
excludable and not rival in consumption.
c.
both rival in consumption and excludable.
d.
neither rival in consumption nor excludable.
13. The Tragedy of the Commons occurs because
a.
a common resource is rival in consumption.
b.
a common resource is underutilized.
c.
crimes are committed in public places.
d.
common resources are subject to exclusionary rules.
14. The Tragedy of the Commons occurs because
a.
government property is most heavily used by the wealthy.
b.
everyone deserves an equal share of government property.
c.
social and private incentives differ.
d.
established property rights create competition.
15. The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government doing
each of the following except
a.
assigning land property rights.
b.
auctioning off sheep-grazing permits.
c.
taxing sheep flocks.
d.
subsidizing sheep flocks.
16. The Ogallala aquifer is a large underground pool of fresh water under several western states in the United
States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that
a.
over time, the aquifer is likely to be overused.
b.
each farmer has a sufficient incentive to conserve the water.
c.
state governments have an incentive to insure that their farmers do not overuse the water.
d.
resources would be used more efficiently if the government paid for the pumps farmers use to get
the water.
17. Each of the following is likely to be a successful way for the government to solve the problem of overuse of a
common resource except
a.
regulating the use or consumption of the common resource.
b.
taxing the use or consumption of the common resource.
c.
selling the common resource to a private entity.
d.
asking individuals to voluntarily reduce their use of the resource.
Chapter 11/Public Goods and Common Resources ❖ 39
18. The Tragedy of the Commons
a.
occurs most often with public goods.
b.
is only applicable to shared grazing rights among sheep herders.
c.
is eliminated when property rights are assigned to individuals.
d.
occurs when social incentives are in line with private incentives.
19. The Tragedy of the Commons can be corrected by
a.
conducting a cost-benefit analysis.
b.
assigning property rights to individuals.
c.
providing government subsidies for the resource.
d.
making certain everyone in the economy has access to the resource.
20. The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons
leads to a destruction of the grazing resource. To correct for this problem, the town could
a.
allow individual shepherds to chose their own flock sizes.
b.
internalize the externality by subsidizing the production of sheep's wool.
c.
auction off a limited number of sheep-grazing permits.
d.
wait until the market corrects the problem.
21. Three business people meet for lunch at an Indian restaurant. They decide that each person will order an item
off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the
people at the table. When the food is delivered to the table, each person faces incentives similar to the
a.
consumption of a common resource good.
b.
production of a public good.
c.
consumption of a club good.
d.
production of a private good.
22. If the use of a common resource is not regulated,
a.
no one can enjoy it.
b.
it will tend to be underused.
c.
property rights will be clearly defined.
d.
it will be overused.
23. On holiday weekends thousands of people picnic in state parks. Some picnic areas become so overcrowded the
benefit or value of picnicking diminishes to zero. An overcrowded picnic area is an example of
a.
a private good.
b.
a club good.
c.
a Tragedy of the Commons.
d.
public good.
40 ❖ Chapter 11/Public Goods and Common Resources
24. The degradation of the environment from litter is a
a.
a negative externality.
b.
free rider problem.
c.
Tragedy of the Commons.
d.
Both a and c are correct.
25. The sign on a church in your neighborhood reads “All are welcome at Sunday Service.” Because the church
has limited seating and is usually full, the Sunday Service is
a.
a private good.
b.
a public good.
c.
a club good.
d.
a common resource.
26. A New York legislator wanted to create a deposit on cigarettes butts. If implemented, people would have the
incentive to (1) not toss cigarette butts onto public streets and sidewalks, and (2) pick butts up to redeem them
for the cash. The degradation of the environment from littered cigarette butts is a
a.
private goods problem.
b.
Nash equilibrium.
c.
Tragedy of the Commons.
d.
cost-benefit equilibrium.
27. Which of the following is an example of the Tragedy of the Commons?
a.
The number of professional football teams increases to the point where the quality of the games
decreases, as does television viewership.
b.
The number of satellites increases to the point where they begin running into each other.
c.
Disney World becomes so crowded that it institutes a lottery for admissions.
d.
A tiger breeding program becomes so successful that local zoos have to build additional exhibits so
that visitors can view the cats.
28. Which of the following is an example of government intervention to solve a Tragedy of the Commons prob-
lem?
a.
subsidizing basic research
b.
building lighthouses
c.
toll charges on congested roads
d.
cost-benefit analysis
