Chapter 11 Public Goods and Common Resources
MULTIPLE CHOICE
1. For private goods allocated in markets,
a.
prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of
resources.
b.
prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation
of resources.
c.
the government guides the decisions of buyers and sellers and these decisions lead to an efficient
allocation of resources.
d.
the government guides the decisions of buyers and sellers and these decisions lead to an inefficient
allocation of resources.
2. Government policy can potentially raise economic well-being
a.
in all markets for goods and services.
b.
in economic models, but not in reality.
c.
when a good does not have a price attached to it.
d.
never.
3. The old lyric “the best things in life are free”
a.
is not true for any goods.
b.
is even true for some goods that have a price.
c.
refers to goods provided by nature or the government.
d.
refers to goods provided by the market.
4. Governments can improve market outcomes for
a.
public goods but not common resources.
b.
common resources but not public goods.
c.
both public goods and common resources.
d.
neither public goods nor common resources.
5. For most goods in an economy, the signal that guides the decisions of buyers and sellers is
a.
preference.
b.
government intervention.
c.
quantity.
d.
price.
2 ❖ Chapter 11/Public Goods and Common Resources
6. When goods do not have a price, which of the following primarily ensures that the good is produced?
a.
buyers
b.
sellers
c.
government
d.
the market
THE DIFFERENT KINDS OF GOODS
1. The provision of a public good generates a
a.
positive externality, as does the use of a common resource.
b.
positive externality and the use of a common resource generates a negative externality.
c.
negative externality, as does the use of a common resource.
d.
negative externality and the use of a common resource generates a positive externality.
2. The idea that “externalities arise because something of value has no price attached to it” is associated with
a.
public goods, but not with common resources.
b.
common resources, but not with public goods.
c.
both public goods and common resources.
d.
neither public goods nor common resources.
3. The provision of public goods gives rise to
a.
no externalities.
b.
positive externalities.
c.
negative externalities.
d.
rivalries in consumption.
4. The provision of public goods gives rise to
a.
positive externalities, as does the use of common resources.
b.
positive externalities, whereas the use of common resources gives rise to negative externalities.
c.
negative externalities, whereas the use of common resources gives rise to positive externalities.
d.
negative externalities, as does the use of common resources.
5. Private decisions about consumption of common resources and production of public goods usually lead to an
a.
efficient allocation of resources and external effects.
b.
efficient allocation of resources and no external effects.
c.
inefficient allocation of resources and external effects.
d.
inefficient allocation of resources and no external effects.
Chapter 11/Public Goods and Common Resources ❖ 3
6. When a good is excludable,
a.
one person’s use of the good diminishes another person’s ability to use it.
b.
people can be prevented from using the good.
c.
no more than one person can use the good at the same time.
d.
everyone will be excluded from using the good.
7. A good is excludable if
a.
one person’s use of the good diminishes another person’s enjoyment of it.
b.
the government can regulate its availability.
c.
it is not a normal good.
d.
people can be prevented from using it.
8. Excludability is the property of a good whereby
a.
one person’s use diminishes other peoples’ use.
b.
a person can be prevented from using it.
c.
a good is private, not public.
d.
a good is public, not private.
9. If people can be prevented from using a certain good, then that good is called
a.
rival in consumption.
b.
excludable.
c.
a common resource.
d.
a public good.
10. Goods that are excludable include both
a.
club goods and public goods.
b.
public goods and common resources.
c.
common resources and private goods.
d.
private goods and club goods.
11. Goods that are not excludable include both
a.
private goods and public goods.
b.
club goods and common resources.
c.
common resources and public goods.
d.
private goods and club goods.
4 ❖ Chapter 11/Public Goods and Common Resources
12. Both public goods and common resources are
a.
rival in consumption.
b.
nonrival in consumption.
c.
excludable.
d.
nonexcludable.
13. Both private goods and club goods are
a.
rival in consumption.
b.
nonrival in consumption.
c.
excludable.
d.
nonexcludable.
14. Goods that are not excludable are usually
a.
higher priced than excludable goods.
b.
higher priced than rival goods.
c.
in short supply.
d.
free of charge.
15. When something of value has no price attached to it,
a.
externalities will be present.
b.
production of the product has no cost.
c.
government should not intervene to produce the product.
d.
private companies will eventually produce the product, and the good will no longer be free.
16. A view of a spectacular sunset along a private beach is an example of a
a.
private good.
b.
public good.
c.
nonrival but excludable good.
d.
rival but nonexcludable good.
17. Reggie owns 3 acres of beautiful wooded land. When Reggie decides to move to be closer to his grandchil-
dren, he donates the land to the state with the understanding that the land will be used as a state park. This
state park is large enough that it is not congested. It is an example of a good that is
a.
both rival in consumption and excludable.
b.
neither rival in consumption nor excludable.
c.
nonrival in consumption and excludable.
d.
rival in consumption and nonexcludable.
Chapter 11/Public Goods and Common Resources ❖ 5
18. When a good is rival in consumption,
a.
one person’s use of the good diminishes another person’s ability to use it.
b.
people can be prevented from using the good.
c.
an unlimited number of people can use the good at the same time.
d.
everyone will be excluded from obtaining the good.
19. If one person‘s use of a good diminishes another person’s enjoyment of it, the good is
a.
rival in consumption.
b.
excludable.
c.
normal.
d.
exhaustible.
20. Goods that are rival in consumption include both
a.
club goods and public goods.
b.
public goods and common resources.
c.
common resources and private goods.
d.
private goods and club goods.
21. Goods that are not rival in consumption include both
a.
private goods and common resources.
b.
club goods and public goods.
c.
common resources and public goods.
d.
private goods and club goods.
22. An FM radio signal is an example of a good that is
a.
private.
b.
nonrival in consumption.
c.
social.
d.
nonexcludable in production.
23. Goods that are rival in consumption but not excludable would be considered
a.
club goods.
b.
common resources.
c.
public goods.
d.
private goods.
6 ❖ Chapter 11/Public Goods and Common Resources
24. Goods that are rival in consumption and excludable would be considered
a.
club goods.
b.
common resources.
c.
public goods.
d.
private goods.
25. Some goods can be either common resources or public goods depending on
a.
whether the good is rival in consumption.
b.
whether the good is excludable.
c.
the marginal cost of the good.
d.
None of the above is correct.
26. If a road is congested, then use of that road by an additional person would lead to a
a.
negative externality.
b.
positive externality.
c.
Pigovian externality.
d.
free-rider problem with rush hour drivers stuck in traffic.
27. Which of the following would not be considered a private good?
a.
a sweater
b.
a slice of pizza
c.
a Toyota Prius
d.
cable TV service
28. Which of the following would be considered a private good?
a.
national defense
b.
a public beach
c.
local cable television service
d.
a bottle of natural mineral water
29. Most goods in the economy are
a.
club goods.
b.
common resources.
c.
public goods.
d.
private goods.
Chapter 11/Public Goods and Common Resources ❖ 7
30. An example of a private good would be
a.
a local fire department.
b.
a pair of pants.
c.
a streetlight.
d.
a national park.
31. The value and cost of goods are easiest to determine when the goods are
a.
private goods.
b.
public goods.
c.
common resources.
d.
club goods.
32. Private goods are both
a.
excludable and nonrival in consumption.
b.
nonexcludable and rival in consumption.
c.
excludable and rival in consumption.
d.
nonexcludable and nonrival consumption.
33. Which of the following goods is rival and excludable?
a.
an uncongested toll road
b.
an uncongested nontoll road
c.
a congested nontoll road
d.
a congested toll road
34. Which of the following goods is rival in consumption and excludable?
a.
a can of Coca-Cola
b.
cable TV service
c.
a fireworks display
d.
the environment
35. Which of the following goods is rival in consumption and excludable?
a.
a tornado siren
b.
an uncongested toll road
c.
a home
d.
the environment
8 ❖ Chapter 11/Public Goods and Common Resources
36. Which of the following goods is nonrival in consumption and excludable?
a.
a tornado siren
b.
an uncongested toll road
c.
a home
d.
the environment
37. Which of the following goods is both excludable and rival in consumption?
a.
a wristwatch
b.
fire protection in a small town
c.
fish in the ocean
d.
efforts to fight poverty
38. Which of the following goods is excludable but not rival in consumption?
a.
a congested toll road
b.
fire protection in a small town
c.
a tornado siren
d.
whales in the ocean
39. Under which of the following scenarios would a park be considered a common resource?
a.
Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.
b.
Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c.
Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d.
Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
40. Under which of the following scenarios would a park be considered a public good?
a.
Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.
b.
Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c.
Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d.
Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
41. Under which of the following scenarios would a park be considered a club good?
a.
Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic tables.
b.
Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c.
Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d.
Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
Chapter 11/Public Goods and Common Resources ❖ 9
42. A vacation home in Malibu is
a.
not rival in consumption and excludable.
b.
rival in consumption and excludable.
c.
not rival in consumption and not excludable.
d.
rival in consumption and not excludable.
43. An AM radio transmission of a baseball game is
a.
excludable and rival in consumption.
b.
excludable and not rival in consumption.
c.
not excludable and rival in consumption.
d.
not excludable and not rival in consumption.
44. A pizza is
a.
excludable and rival in consumption.
b.
excludable and nonrival in consumption.
c.
nonexcludable and rival in consumption.
d.
nonexcludable and nonrival in consumption.
45. A local park filled with picnickers is
a.
excludable and rival in consumption.
b.
excludable and not rival in consumption.
c.
not excludable and rival in consumption.
d.
not excludable and not rival in consumption.
46. A cable television broadcast of a movie is
a.
excludable and rival in consumption.
b.
excludable and not rival in consumption.
c.
not excludable and rival in consumption.
d.
not excludable and not rival in consumption.
47. A congested side street in your neighborhood is
a.
excludable and rival in consumption.
b.
excludable and not rival in consumption.
c.
not excludable and rival in consumption.
d.
not excludable and not rival in consumption.
10 ❖ Chapter 11/Public Goods and Common Resources
48. Pay-per-view broadcasts are
a.
private goods.
b.
club goods.
c.
common resources.
d.
public goods.
49. The Great Lakes are
a.
private goods.
b.
club goods.
c.
common resources.
d.
public goods.
50. A streetlight is a
a.
private good.
b.
club good.
c.
common resource.
d.
public good.
51. Labor is a
a.
private good.
b.
club good.
c.
common resource.
d.
public good.
52. At the local park there is a playground for children to use. While anyone is allowed to use the playground, it
is often very busy, reducing the enjoyment of many of the children who use it. The playground is a
a.
private good.
b.
club good.
c.
common resource.
d.
public good.
53. At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so
children who use the playground receive full enjoyment from its use. The playground is
a.
rival in consumption and is excludable.
b.
not rival in consumption, but is excludable.
c.
rival in consumption, but is not excludable.
d.
not rival in consumption nor is it excludable.
Chapter 11/Public Goods and Common Resources ❖ 11
54. The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Any-
one can obtain a card for free. Because the number of copies of each book is limited, not everyone can have
the same book at the same time. What type of good would the library books be classified as in this case?
a.
private goods
b.
club goods
c.
common resources
d.
public goods
55. The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists must pay
tolls at various points along the Turnpike based on the distance they traveled on the freeway. Suppose that
despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to slow during peak times.
What type of good would the Turnpike be classified as in this case?
a.
private good
b.
club good
c.
common resource
d.
public good
56. Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be
considered a
a.
private good.
b.
club good.
c.
common resource.
d.
public good.
PUBLIC GOODS
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. Which of the following is not a public good?
a.
national defense
b.
patented technological knowledge
c.
general knowledge
d.
the elimination of poverty
12 ❖ Chapter 11/Public Goods and Common Resources
3. 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.
4. 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.
5. A sidewalk runs across Milton’s front yard near the street. By law, anyone has the right to use the sidewalk.
When Milton shovels the sidewalk after a heavy snow, he is providing a
a.
good that is rival in consumption.
b.
private good.
c.
public good.
d.
common resource.
6. 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.
7. The free-rider problem exists with
a.
apples.
b.
knowledge.
c.
cable TV service.
d.
congested toll roads.
8. A free-rider problem exists for any good that is not
a.
rival in consumption.
b.
a private good.
c.
free.
d.
excludable.
Chapter 11/Public Goods and Common Resources ❖ 13
9. 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.
10. Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are union-
ized. 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 be-
havior is an example of
a.
rivalry.
b.
a barrier to entry.
c.
free riding.
d.
Taft-Hartley opposition.
11. 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.
12. Who among the following is a free rider?
a.
Mickey buys groceries from the store where he works.
b.
Donald rides to work with Betsey, but he pays Betsey for gasoline and other travel-related
expenses.
c.
Fred drives 20,000 miles a year on public streets, but he pays no more in property taxes than
Barney, who only drives 1,000 miles.
d.
Wilma watches many public television programs, but she has never sent in a contribution to the
station.
13. 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.
14 ❖ Chapter 11/Public Goods and Common Resources
14. 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.
15. 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.
16. 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.
17. You are the mayor of a town with 20,000 residents. The head of your economic development agency recently
conducted a survey in which the 20,000 residents said that a small public library in the center of town would
be worth $40 to each of them. Because the cost to build the library is only $500,000, you arrange to have the
library built. Everyone in town enjoys the library, but when you asked for donations to pay for the library, you
only collected $100,000. You are convinced that
a.
the survey must have overstated how much the library was worth to each resident; otherwise, you
would have collected $500,000 in donations.
b.
the cost of the library exceeded the social benefits.
c.
the library was an example of the Tragedy of the Commons.
d.
most residents of the town are probably free-riders at the library.
18. You are the mayor of a town with 20,000 residents. The head of your economic development agency recently
conducted a survey in which the 20,000 residents said that a small public library in the center of town would
be worth $40 to each of them. The cost to build the library is $500,000. Which of the following is the most
efficient option?
a.
The library should be built and paid for with donations collected from residents, as these donations
should more than cover the cost of the library.
b.
The library 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 library should be built and paid for by the wealthiest ten percent of the residents.
d.
The library should not be built.
Chapter 11/Public Goods and Common Resources ❖ 15
19. 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.
20. 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.
21. 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.
22. A free rider problem arrises 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. 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.
16 ❖ Chapter 11/Public Goods and Common Resources
24. 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.
25. 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.
26. 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.
27. It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. mili-
tary 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.
Chapter 11/Public Goods and Common Resources ❖ 17
28. 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.
29. Knowledge is an example of a
a.
public good.
b.
private good.
c.
common resource.
d.
club good.
30. 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.
31. 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.
32. 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.
33. Which of the following is an example of general knowledge, as opposed to specific knowledge that can be pa-
tented?
a.
the invention of a longer-lasting battery
b.
a mathematical theorem
c.
a method for constucting a high-performance microchip
d.
the chemical formula for an adhesive
18 ❖ Chapter 11/Public Goods and Common Resources
34. 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.
35. Advocates of antipoverty programs claim that fighting poverty
a.
is best accomplished by charities.
b.
is a public good.
c.
is more efficiently accomplished by the market.
d.
should not be attempted with tax dollars.
36. 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.
37. 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.
38. 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.
39. Which of the following is not a characteristic of a public good?
a.
It is nonexcludable.
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.
Chapter 11/Public Goods and Common Resources ❖ 19
40. 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.
41. 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.
42. 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.
43. 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.
44. 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.
20 ❖ Chapter 11/Public Goods and Common Resources
45. 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)
46. Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk
of someone dying in an accident from 4.1 percent to 1.5 percent over the life of the highway. If a human life is
worth $4.2 million, then the project is worth doing as long as it does not cost more than
a.
$67,200.
b.
$109,200.
c.
$274,500.
d.
$1.6 million.
47. 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 edu-
cated 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.
48. The local fire department wants to buy some new equipment at a cost of $300,000. If a human life is worth
$10 million, the equipment is worth buying if it reduces the risk of someone dying in a fire over the life of the
equipment by at least
a.
1 percentage point.
b.
3 percentage points.
c.
5 percentage points.
d.
30 percentage points.