Page 1
1.
Which example is considered a nonexcludable good?
A)
health care
B)
national defense
C)
education
D)
ice cream
2.
Which example best fits the characteristics of a private good?
A)
a professor giving a lecture in a large classroom
B)
an ice-cream cone
C)
fire protection
D)
disease prevention
3.
A(n) _____ is excludable and rival in consumption.
A)
private good
B)
artificially scarce good
C)
public good
D)
common resource
4.
When Joe watches a movie on Netflix, his viewing is _____ in consumption because
other people _____ able to watch the movie at the same time as Joe does.
A)
nonrival; are
B)
rival; are
C)
rival; are not
D)
nonrival; are not
5.
A good is most likely to be artificially scarce if:
A)
it is nonexcludable and nonrival.
B)
the seller is a monopolist.
C)
it is nonexcludable but rival.
D)
it is excludable but nonrival.
6.
Which good is most likely a common resource?
A)
the Super Bowl
B)
a public park
C)
a pair of pants
D)
the fire department
Page 2
7.
Which good is most likely an artificially scarce good?
A)
a ticket to a boxing match
B)
pay-per-view of a boxing match
C)
health care
D)
the police department
8.
Television programs are nonrival because:
A)
the supplier cannot prevent consumption by people who do not pay for it.
B)
more than one person can consume the same unit of the good at the same time.
C)
individuals ignore the effect of their use on the amount of the resource remaining
for others.
D)
the market suffers from inefficiently low consumption.
9.
Clean water in a river is nonexcludable because:
A)
it is not possible to prevent consumption by people who do not pay for it.
B)
more than one person can consume the same unit of the good at the same time.
C)
individuals ignore the effect their use has on the amount of the resource remaining
for others.
D)
consumption is inefficiently low.
10.
Which good best fits the characteristics of a private good?
A)
national defense
B)
clean water
C)
a pizza
D)
police protection
11.
A private good is _____ in consumption.
A)
excludable and rival
B)
nonexcludable and nonrival
C)
excludable and nonrival
D)
nonexcludable and rival
12.
Which good is most likely a public good?
A)
the Internet
B)
an amusement park
C)
a pair of pants
D)
fire protection from the fire department in a town
Page 3
13.
A(n) _____ is nonexcludable and nonrival in consumption.
A)
private good
B)
artificially scarce good
C)
public good
D)
common resource
14.
A public good is a good or service for which exclusion is _____ and that is _____ in
consumption.
A)
possible; rival
B)
possible; nonrival
C)
not possible; rival
D)
not possible; nonrival
15.
A private good is a good or service for which exclusion is _____ and that is _____ in
consumption.
A)
possible; rival
B)
possible; nonrival
C)
not possible; rival
D)
not possible; nonrival
16.
A common resource is a good or service for which exclusion is _____ and that is _____
in consumption.
A)
possible; rival
B)
possible; nonrival
C)
not possible; rival
D)
not possible; nonrival
17.
An artificially scarce good is a good or service for which exclusion is _____ and that is
_____ in consumption.
A)
possible; rival
B)
possible; nonrival
C)
not possible; rival
D)
not possible; nonrival
18.
Whether or not they pay for them, people cannot be excluded from receiving the
benefits of _____, but they can be excluded from the benefits of _____.
A)
private goods; public goods and common resources
B)
public goods; private goods and common resources
C)
common resources; public goods and private goods
D)
either public goods or common resources; private goods
Page 4
19.
The best example of a public good is:
A)
a court of law.
B)
clothing.
C)
food.
D)
a state university.
20.
The best example of a private good is:
A)
an automobile.
B)
public education.
C)
national defense.
D)
law enforcement.
21.
The best example of a public good is:
A)
legal services.
B)
national defense.
C)
a municipal library.
D)
cable television programming.
22.
The best example of an artificially scarce good is:
A)
legal services.
B)
national defense.
C)
a municipal library.
D)
cable television programming.
23.
The best example of a common resource(s) is/are:
A)
public education.
B)
a football match.
C)
fish to catch in a local public lake.
D)
cable television programming.
24.
Fish in a public lake are common resources because the private market _____ prevent
consumption by people who do not pay for access to fish. Further, the same fish _____
be consumed more than once.
A)
can; can
B)
cannot; cannot
C)
can; cannot
D)
cannot; can
Page 5
25.
An electronic book is an artificially scarce good because the private market _____
prevent consumption by people who do not pay for it. Further, the same e-book _____
be consumed by more than one person at the same time.
A)
can; can
B)
cannot; cannot
C)
can; cannot
D)
cannot; can
26.
If a good has a marginal cost of production of zero and an inefficiently low level of
consumption, the good must be a(n):
A)
private good.
B)
public good.
C)
common resource.
D)
artificially scarce good.
27.
If the market produces an efficient level of a good, then we know that the good must be
_____ and _____ in consumption.
A)
nonexcludable; nonrival
B)
nonexcludable; rival
C)
excludable; nonrival
D)
excludable; rival
28.
Although most citizens have access to police protection, they also take measures, such
as putting locks on their doors, to protect themselves. For most citizens, police
protection is a(n) _____ good, while self-protection is a(n) _____ good.
A)
public; private
B)
public; artificially scarce
C)
private; private
D)
artificially scarce; common resource
29.
Which example is considered a private good?
A)
traffic lights
B)
mountain bike trails in a national forest
C)
a fast-food cheeseburger
D)
cell phone service
Page 6
30.
Stephanie stops at a gas station to fill up the tank of her car. The unleaded gasoline in
her tank is BEST described as a(n):
A)
private good.
B)
public good.
C)
artificially scarce good.
D)
common resource.
31.
DeVonda owns a music store. One night, vandals broke her store’s front window.
DeVonda called the police, and the police investigated the crime. The police services
that DeVonda used are BEST described as a(n):
A)
private good.
B)
public good.
C)
artificially scarce good.
D)
common resource.
32.
Josh has an iPhone, and he frequently downloads songs from iTunes. He pays a small
price for each download, but downloading a song does not remove it from the iTunes
inventory, which is available for other buyers. The iTunes service is best described as
a(n):
A)
private good.
B)
public good.
C)
artificially scarce good.
D)
common resource.
33.
Bluefin tuna travel in schools throughout the world’s oceans. Fishing boats from many
nations harvest bluefin tuna as the schools migrate through their national waters. The
schools of bluefin tuna are best described as a(n):
A)
private good.
B)
public good.
C)
artificially scarce resource.
D)
common resource.
34.
As a big music fan, you want to attend a weekend blues festival in your town. The
purchase of a wristband gives you and thousands of other fans access to the very large
outdoor concert pavilion, where you all fit comfortably. The blues festival is a good that
has the characteristics of being:
A)
rival and excludable.
B)
nonrival and excludable.
C)
rival and nonexcludable.
D)
nonrival and nonexcludable.
Page 7
35.
Public goods differ from common resources in that, while both are _____, public goods
are _____, while common resources are _____.
A)
nonrival in consumption; excludable; nonexcludable
B)
excludable; nonrival in consumption; rival in consumption
C)
nonexcludable; nonrival in consumption; rival in consumption
D)
rival in consumption; nonexcludable; excludable
36.
The BEST example of a good that is excludable in consumption is:
A)
a park.
B)
an ocean.
C)
a bicycle.
D)
national defense.
37.
When comparing the characteristics of common resources and artificially scarce goods,
we find that:
A)
they are both nonrival in consumption.
B)
they are both excludable.
C)
artificially scarce goods are rival in consumption (while common resources are not)
and common resources are excludable (while artificially scarce goods are not).
D)
common resources are rival in consumption (while artificially scarce goods are not)
and artificially scarce goods are excludable (while common resources are not).
38.
National defense and clean air are similar in that both are _____, but they differ in that
clean air is _____, while national defense is not.
A)
rival in consumption; excludable
B)
nonrival in consumption; excludable
C)
excludable; rival in consumption
D)
nonexcludable; rival in consumption
39.
National defense and e-books are similar in that both are _____, but they differ in that
national defense is _____, while e-books are _____.
A)
rival in consumption; excludable; nonexcludable
B)
nonrival in consumption; nonexcludable; excludable
C)
excludable; rival in consumption; nonrival in consumption
D)
nonexcludable; nonrival in consumption; rival in consumption
Page 8
40.
An artificially scarce good is similar to a public good in that it is _____, but it is also
similar to a private good in that it is _____.
A)
nonrival in consumption; nonexcludable
B)
nonrival in consumption; excludable
C)
excludable; nonrival in consumption
D)
nonexcludable; rival in consumption
41.
An e-book is similar to a published book in that it is _____, but it is also similar to
national defense in that it is _____.
A)
rival in consumption; nonexcludable
B)
nonrival in consumption; excludable
C)
excludable; nonrival in consumption
D)
nonexcludable; rival in consumption
42.
A software program is similar to an apple in that it is _____, but it is also similar to
public safety in that it is _____.
A)
rival in consumption; nonexcludable
B)
nonrival in consumption; excludable
C)
excludable; nonrival in consumption
D)
nonexcludable; rival in consumption
43.
If left to the private market, the amount of police protection provided in a city would be
_____ than it is now, and free riders would pay _____ for police protection.
A)
more; more
B)
more; nothing
C)
less; nothing
D)
less; a higher price
44.
For a good to be efficiently provided by the private market, it must be:
A)
rival in consumption and nonexcludable.
B)
nonrival in consumption and excludable.
C)
a common resource.
D)
rival in consumption and excludable.
45.
An individual is most likely to be a free rider when a good is:
A)
private.
B)
nonexcludable.
C)
nonrival.
D)
artificially scarce.
Page 9
46.
The free-rider problem is a direct result of:
A)
the inability to exclude nonpayers.
B)
marginal-cost pricing.
C)
full-cost pricing.
D)
horizontally summed supply curves.
47.
The tendency of people or firms to consume a public good without paying for it is called
the free-_____ problem.
A)
cost
B)
rider
C)
goods
D)
market
48.
When the market does not result in an efficient allocation of scarce resources,
economists say that there has been:
A)
market dropout.
B)
normative economics.
C)
market disincentives.
D)
market failure.
49.
An inefficient allocation of resources will occur when:
A)
decision makers are faced with the full costs and benefits of their actions.
B)
there are clearly defined property rights.
C)
no alternative would increase the welfare of society.
D)
decision makers are not faced with the full benefits and costs of their choices.
50.
When the allocation of resources in a free market environment is such that a different
allocation would increase society’s welfare, economists say:
A)
market failure has occurred.
B)
the efficiency condition is met.
C)
decision makers have faced the full marginal benefits and marginal costs of their
decisions.
D)
producers have maximized total cost.
51.
If a good is subject to the free-rider problem and an inefficiently low level of production
when left to the private market, the good must be a(n):
A)
private good.
B)
public good.
C)
illegal good
D)
artificially scarce good.
Page 10
52.
If a good is subject to the free-rider problem and an inefficiently high level of
consumption, the good must be a(n):
A)
private good.
B)
public good.
C)
common resource.
D)
artificially scarce good.
53.
You work in an office and one of your coworkers has announced his retirement. You
have offered to purchase the retirement gift, so you place a collection jar in the lunch
room for anonymous donations to help pay for the gift. After a week, you find very little
money in the jar, so you end up paying for a large share of the retirement gift. You are
the victim of the _____ problem.
A)
common resource
B)
private good
C)
overuse of a common resource
D)
free-rider
54.
Most neighborhood streets are illuminated at night by streetlights. The streetlights are
_____ and _____. Therefore, they are likely to be _____ by the competitive market.
A)
nonrival; nonexcludable; underprovided
B)
nonrival; nonexcludable; overprovided
C)
rival; excludable; efficiently provided
D)
nonrival; excludable; underprovided
55.
The tendency of people to avoid paying for a good’s benefits when the benefits can be
obtained for free is called the free-_____ problem.
A)
cost
B)
rider
C)
goods
D)
market
56.
The free-rider problem refers to:
A)
the situation in the Old West when land was largely unfenced and riders had
unfettered access to private range land.
B)
qualifications, or riders, that clients do not request, but which lawyers tend to
include in contracts anyway.
C)
a variation on the saying “There’s no such thing as a free lunch,” which is replaced
by “There’s no such thing as a free ride.”
D)
lack of incentive for consumers to pay for a nonexcludable good.
Page 11
57.
For nonrival goods like pay-per-view television programs, the private market will lead
to _____ from a social perspective.
A)
production of too much of the good
B)
consumption of too much of the good
C)
consumption of too little of the good
D)
outsourcing its production
58.
For a nonexcludable good like national defense, the private market will lead to _____ of
the good.
A)
too much production
B)
too much consumption
C)
too little production
D)
the efficient level of consumption
59.
A public good is _____ and _____ in consumption.
A)
excludable; rival
B)
nonexcludable; nonrival
C)
excludable; nonrival
D)
nonexcludable; rival
60.
A key feature of a public good is:
A)
overproduction in the private market.
B)
rival consumption.
C)
payment through charitable contributions.
D)
nonexclusion.
61.
Public goods are not sold in efficient quantities in the private marketplace because:
A)
once supplied to a buyer, they can be made available at no cost to someone else.
B)
the more one person has, the less another person has.
C)
they are usually so costly that only the wealthy can afford them.
D)
they are usually very poor-quality goods.
62.
Which example is considered a public good?
A)
school attendance
B)
national defense
C)
cigarettes
D)
a flu shot
Page 12
63.
A public good is a good:
A)
whose consumption is nonexcludable and nonrival.
B)
for which the marginal cost of adding another consumer is high.
C)
that the market will usually provide efficiently.
D)
whose consumption is rival.
64.
For a public good, nonpayers _____ excluded from obtaining the benefits of the good.
A)
can be
B)
are automatically
C)
usually are
D)
cannot be
65.
The best example of a good whose consumption is not excludable is:
A)
a yard.
B)
a house.
C)
a bicycle.
D)
national defense.
66.
Which example best illustrates a good whose consumption is not excludable?
A)
clothing
B)
ice cream
C)
a taco
D)
clean air
67.
Volunteer fire departments are good examples of the _____ provision of _____.
A)
private; private goods
B)
public; common resources
C)
private; public goods
D)
public; artificially scarce goods
68.
In the United Kingdom, most public television programming is paid for by a yearly
license fee assessed on every household. Television detection vans go through
neighborhoods to detect unlicensed households and keep them from viewing without
paying. This is a good example of the _____ provision of _____.
A)
public; private goods
B)
public; goods that are made artificially excludable in consumption
C)
public; common resources
D)
private; artificially scarce goods
Page 13
69.
Since the public safety that a police force provides is _____ in consumption, the
efficient price _____.
A)
rival; is zero
B)
nonrival; is zero
C)
rival; equals marginal social benefit
D)
nonrival; equals marginal social benefit
70.
For which type of goods is the marginal social benefit necessarily greater than the
marginal private benefit?
A)
public goods
B)
common resources
C)
artificially scarce goods
D)
private goods
71.
No individual is willing to pay to provide the efficient level of a public good since the:
A)
marginal cost of production is zero.
B)
good will be nonrival and thus underconsumed.
C)
individual’s marginal benefit is less than the marginal social benefit.
D)
marginal benefit of allowing one more individual to consume the good is zero.
72.
Public goods should be produced up to the point at which the marginal cost of
production equals:
A)
the maximum price any individual is willing to pay for that unit.
B)
the sum of the individual marginal benefits from all consumers of that unit.
C)
zero, which is the marginal cost of allowing another individual to consume the
good.
D)
the highest marginal benefit from any individual consumer of the good.
73.
Suppose the town of Falls Valley has a mosquito problem. After a bad summer, the
town accountants explain that the marginal cost of providing one more treatment for
mosquito control is $100,000. The town should provide the additional mosquito control
only if the marginal:
A)
benefit for any individual citizen is at least $100,000.
B)
benefits for all individual citizens adds up to at least $100,000.
C)
social cost of mosquito control is more than $100,000.
D)
social cost of mosquito control is less than $100,000.
Page 14
Use the following to answer questions 74-76:
Figure: Traffic Lights in Plymouth
74.
(Ref 36-1 Figure: Traffic Lights in Plymouth) Use Figure 36-1: Traffic Lights in
Plymouth. Plymouth has 1,000 residents. Each of the residents has the same individual
marginal benefit per traffic light. Without government intervention, the town will have
_____ traffic lights.
A)
0
B)
4
C)
8
D)
12
75.
(Ref 36-1 Figure: Traffic Lights in Plymouth) Use Figure 36-1: Traffic Lights in
Plymouth. Plymouth has 1,000 residents. Each of the residents has the same individual
marginal benefit per traffic light. If the government provides traffic lights, the socially
efficient quantity is:
A)
0.
B)
4.
C)
8.
D)
12.
Page 15
76.
(Ref 36-1 Figure: Traffic Lights in Plymouth) Use Figure 36-1: Traffic Lights in
Plymouth. Plymouth has 1,000 residents. Each of the residents has the same individual
marginal benefit per traffic light. If the town’s population doubles and the new residents
share the identical individual marginal benefit of the existing residents, the socially
efficient quantity of traffic lights will:
A)
stay the same.
B)
fall.
C)
rise.
D)
fall to zero.
Use the following to answer questions 77-79:
77.
(Ref 36-2 Table: Street Cleanings) Use Table 36-2: Street Cleanings. What is the
marginal social benefit for Peter and Wendy together when the number of street
cleanings per month increases from 4 to 5?
A)
$30
B)
$60
C)
$6
D)
$15
78.
(Ref 36-2 Table: Street Cleanings) Use Table 36-2: Street Cleanings. Increasing the
number of street cleanings per month from _____ would yield a marginal social benefit
(for Peter and Wendy together) equal to $12.
A)
1 to 2
B)
2 to 3
C)
3 to 4
D)
4 to 5
Page 16
79.
(Ref 36-2 Table: Street Cleanings) Use Table 36-2: Street Cleanings. Suppose that the
marginal cost of each street cleaning is $18. Which statement is true?
A)
If the city decided to clean the streets only once per month, Peter would be willing
to pay the entire cost of the cleaning.
B)
If the city decided to clean the streets only once per month, Wendy would be
willing to pay the entire cost of the cleaning.
C)
If Wendy and Peter were the only people in society, the efficient number of street
cleanings would be one per month.
D)
If Wendy and Peter were the only people in society, the efficient number of street
cleanings would be at least two per month.
80.
Consider an economy with just two citizens. If Sanjay’s marginal benefit from an hour
of mosquito control efforts is $10 and Anjali’s marginal benefit is $25, then the optimal
number of hours of a public good like mosquito control occurs when the marginal cost
of an additional hour of mosquito control is:
A)
$25.00.
B)
$17.50.
C)
$10.00.
D)
$35.00.
Use the following to answer questions 81-84:
81.
(Ref 36-3 Table: Security in a Residential Community) Use Table 36-3: Security in a
Residential Community. Suppose that the residential community has 100 residents. The
marginal cost of hiring the second security guard is _____, and the marginal social
benefit is _____.
A)
$150; $200
B)
$450; $1,800
C)
$150; $600
D)
$450; $600
Page 17
82.
(Ref 36-3 Table: Security in a Residential Community) Use Table 36-3: Security in a
Residential Community. Suppose that the residential community has 100 residents. The
marginal cost of hiring the third security guard is _____, and the marginal social benefit
is _____.
A)
$150; $200
B)
$450; $1,800
C)
$150; $600
D)
$450; $600
83.
(Ref 36-3 Table: Security in a Residential Community) Use Table 36-3: Security in a
Residential Community. Suppose that the residential community has 100 residents. The
marginal cost of hiring the fourth security guard is _____, and the marginal social
benefit is _____.
A)
$150; $200
B)
$150; $100
C)
$150; $600
D)
$600; $1,900
84.
(Ref 36-3 Table: Security in a Residential Community) Use Table 36-3: Security in a
Residential Community. Suppose that the residential community has 100 residents. The
efficient number of security guards is:
A)
0.
B)
2.
C)
3.
D)
4.
Use the following to answer questions 85-88:
Page 18
85.
(Ref 36-4 Table: Total Cost and Total Individual Benefit) Use Table 36-4: Total Cost
and Total Individual Benefit. If there are 1,000 residents and they all have the same total
individual benefit, as shown in the table, what is the total social benefit of three animal
control officers?
A)
$10
B)
$9,000
C)
$10,000
D)
$90,000
86.
(Ref 36-4 Table: Total Cost and Total Individual Benefit) Use Table 36-4: Total Cost
and Total Individual Benefit. If there are 1,000 residents and they all have the same total
individual benefit, as shown in the table, what is the marginal social benefit of the fourth
animal control officer?
A)
$10
B)
$9,000
C)
$10,000
D)
$90,000
87.
(Ref 36-4 Table: Total Cost and Total Individual Benefit) Use Table 36-4: Total Cost
and Total Individual Benefit. If an individual resident were to decide about hiring and
paying for animal control officers on his or her own, how many officers would that
resident hire?
A)
0
B)
1
C)
3
D)
5
88.
(Ref 36-4 Table: Total Cost and Total Individual Benefit) Use Table 36-4: Total Cost
and Total Individual Benefit. Assume there are 1,000 residents and they all have the
same total individual benefit, as shown in the table. If the residents acted together, how
many officers would they hire?
A)
0
B)
1
C)
3
D)
5
Page 19
89.
A characteristic of public goods is that:
A)
people pay for them in proportion to the benefits received.
B)
the costs of producing them are less than if they were private goods.
C)
their benefits cannot be withheld from anyone, regardless of whether a person pays
for them.
D)
they are produced only by the private sector, not by the public sector.
90.
Some public goods would not be provided without government intervention because the
marginal cost of the good:
A)
exceeds an individual’s marginal benefit.
B)
is less than an individual’s marginal benefit.
C)
would equal an individual’s marginal benefit.
D)
would need to be maximized.
91.
Public goods should be provided to the point at which the marginal cost of production
equals:
A)
the maximum price any individual is willing to pay for that unit.
B)
the highest marginal benefit from any individual consumer of the good.
C)
zero.
D)
the sum of the individual marginal benefits from all consumers of that unit.
92.
No individual is willing to pay for the efficient quantity of a public good because the
marginal benefit to an individual _____ the marginal social benefit.
A)
equals
B)
exceeds
C)
is less than
D)
may be equal to or greater than
93.
To maximize society’s welfare, the government should produce a public good up to the
point at which the marginal social benefit _____ the marginal social cost.
A)
equals
B)
exceeds
C)
is less than
D)
is equal to or greater than
Page 20
Use the following to answer questions 94-100:
Figure: An Individual’s Marginal Benefit from a Public Good
94.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. What is the marginal social benefit from four units of
the public good?
A)
$0
B)
$8
C)
$16
D)
$32
95.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. What is the total social benefit from four units of the
public good?
A)
$16
B)
$60
C)
$140
D)
$200
Page 21
96.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. If the marginal cost of the good is $24, how many
units of the public good will be provided by the private market?
A)
0
B)
8
C)
12
D)
16
97.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. If the marginal cost of the good is $24, how many
units of this public good would maximize society’s welfare?
A)
0
B)
8
C)
12
D)
16
98.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. If the marginal cost of the good is $24, what is the
total benefit of the level of the public good that maximizes society’s welfare?
A)
$0
B)
$24
C)
$124
D)
$248
99.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. If the marginal cost of the good is $8, how many units
of the public good will be provided by the private market?
A)
0
B)
8
C)
12
D)
16
Page 22
100.
(Ref 36-5 Figure: An Individual’s Marginal Benefit from a Public Good) Use Figure
36-5: An Individual’s Marginal Benefit from a Public Good. Assume that two
individuals will share consumption of a public good; each individual has the marginal
benefit curve shown in the figure. If the marginal cost of the good is $8, how many units
of this public good will maximize society’s welfare?
A)
0
B)
8
C)
12
D)
16
101.
For a public good, which statement(s) accurately describe(s) the marginal social benefit
(MSB)?
I. MSB equals the sum of the individual marginal benefits for all of the consumers of
that unit.
II. MSB equals the sum of each consumer’s willingness to pay for that unit.
III. MSB is greater than any individual marginal benefit.
A)
I only
B)
II only
C)
I and II only
D)
I, II, and III
Use the following to answer questions 102-104:
102.
(Ref 36-6 Table: Marginal Benefit from Additional Streetlights) Use Table 36-6:
Marginal Benefit from Additional Streetlights. Suppose that the marginal cost of
installing a streetlight is $6. What is the maximum that Art would be willing to pay to
have one streetlight installed in the neighborhood?
A)
$20
B)
$15
C)
$35
D)
$5
Page 23
103.
(Ref 36-6 Table: Marginal Benefit from Additional Streetlights) Use Table 36-6:
Marginal Benefit from Additional Streetlights. Suppose that the marginal cost of
installing a streetlight is $6. If Dave had to pay for streetlights on his own, how many
streetlights would there be?
A)
0
B)
1
C)
2
D)
3
104.
(Ref 36-6 Table: Marginal Benefit from Additional Streetlights) Use Table 36-6:
Marginal Benefit from Additional Streetlights. Suppose that the marginal cost of
installing a streetlight is $6. What is the socially optimal number of streetlights in the
neighborhood?
A)
1
B)
2
C)
3
D)
4
105.
Which statement is true?
A)
It is possible to observe how much people benefit from consuming an additional
unit of a public good.
B)
It is difficult to get an accurate estimate of the marginal social benefits of public
goods because individuals have an incentive to distort the truth about their
willingness to pay.
C)
Individuals tend to underestimate the amount of a public good that they desire.
D)
It is straightforward to estimate the marginal social benefits of public goods.
106.
What is difficult about using cost-benefit analysis to estimate the level of a public good
that will maximize social welfare?
A)
The government cannot use cost-benefit analysis to estimate this.
B)
It is difficult to estimate the marginal costs of supplying a public good.
C)
It is difficult to estimate the marginal social benefits of supplying a public good.
D)
The costs of using it may make the provision of the public good prohibitive.
107.
Which example is considered a common resource?
A)
a public beach with free access
B)
a seat on an airplane
C)
a highway to which access is granted only to those who pay a specified toll
D)
a city sewer system
Page 24
108.
Which example is best characterized as a common resource?
A)
national defense
B)
a bottle opener
C)
a dorm kitchen
D)
a pair of boots
109.
Common resources tend to be _____ in private markets.
A)
priced too high
B)
efficiently priced
C)
overconsumed
D)
underconsumed
110.
If the marginal social benefit received from a good is equal to the marginal social cost of
production:
A)
an increase in production will improve society’s well-being.
B)
a decrease in production will improve society’s well-being.
C)
no change in production can improve society’s well-being.
D)
the market is producing too much of the good.
111.
If the marginal social benefit received from a good is less than the marginal social cost
of production:
A)
an increase in production will improve society’s well-being.
B)
a decrease in production will improve society’s well-being.
C)
no change in production can improve society’s well-being.
D)
the market is producing too little of the good.
112.
If the marginal social benefit received from a good is greater than the marginal social
cost of production:
A)
an increase in production will improve society’s well-being.
B)
a decrease in production will improve society’s well-being.
C)
no change in production can improve society’s well-being.
D)
the market is producing too much of the good.
Page 25
113.
If the extent to which common resources (such as fish in the sea) should be used is left
to the private market:
A)
resource use will be efficient and will maximize social welfare.
B)
each individual will use the resource until his or her marginal benefit is equal to the
marginal social cost.
C)
the marginal social cost and each individual’s marginal private cost will be the
same.
D)
the marginal social cost will be greater than the marginal private cost, and the
resource will be overused.
114.
If the use of a common resource is determined in the private market, the resource will be
_____ since the marginal social benefit will be equal to the marginal private cost of
production, which is _____ than the marginal social cost.
A)
underused; greater than
B)
overused; less than
C)
overused; greater than
D)
underused; equal to
115.
Common resources tend to be overused because:
A)
individuals tend to ignore the cost to others of their use of the resource.
B)
the individual marginal cost is greater than the marginal social cost.
C)
common resources are nonrival and nonexcludable.
D)
the marginal cost of allowing one more unit of consumption is zero.
116.
For a common resource, the marginal social benefit at the quantity provided by a private
market is _____ the marginal social cost.
A)
equal to
B)
greater than
C)
less than
D)
irrelevant to
Page 26
117.
(Figure: Marginal Social Cost and Supply) Use Figure: Marginal Social Cost and
Supply. The marginal social cost curve lies above the supply curve:
Figure: Marginal Social Cost and Supply
A)
because the marginal social benefit is greater for a common resource.
B)
and the efficient quantity of this common resource is point E.
C)
because the marginal social cost includes the cost to society of depleting this
common resource.
D)
because this is a public good.
118.
Consumption of a common resource is inefficiently too _____ because the marginal
social cost of the resource is _____ than the private marginal cost.
A)
low; higher
B)
low; less
C)
high; higher
D)
high; less
119.
Traffic congestion imposes higher costs and discomfort to residents of a city because the
marginal social cost of any one individual’s use of the roads is _____ the individual
marginal cost.
A)
less than
B)
greater than
C)
equal to
D)
irrelevant to
Page 27
120.
If the market supply and demand curves for a common resource include all costs and
benefits to society from production and consumption, the common resource will:
A)
be underused.
B)
be overused.
C)
be used at the socially optimal level.
D)
impose an external cost on society.
121.
(Figure: Model of a Market for a Common Resource) Use Figure: Model of a Market
for a Common Resource. The figure shows the intersection of the private supply and
demand curves. Without any consideration of the marginal social cost of using a
common resource, the quantity of the common resource used at Q will be:
Figure: Model of a Market for a Common Resource
A)
larger than is socially desirable.
B)
smaller than is socially desirable.
C)
efficient.
D)
indeterminate without more information.
122.
If an individual does not have to pay to use a common resource, that individual will
continue to use a common resource until his or her:
A)
marginal benefit is zero.
B)
marginal cost is zero.
C)
marginal benefit exceeds marginal cost.
D)
marginal benefit equals the marginal social cost.
Page 28
123.
The marginal social cost of a common resource is _____ than an individual’s marginal
cost, and without government intervention the market will allow provision of _____ of
the common resource than is socially optimal.
A)
less; more
B)
less; less
C)
greater; more
D)
greater; less
124.
Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can
go offshore, lower a crab pot, and harvest king crab. This common resource will likely
be _____ because the marginal social cost of harvesting crabs _____ the market price of
crab.
A)
overfished; is equal to
B)
overfished; is less than
C)
efficiently fished; is equal to
D)
overfished; exceeds
125.
The problem with common resources is similar to the problem with negative
externalities because:
A)
both issues deal with natural resources.
B)
the marginal social benefit of producing another unit exceeds the individual’s
marginal benefit.
C)
the marginal social cost of producing another unit exceeds the individual’s marginal
cost.
D)
the individual’s marginal cost of producing another unit exceeds the individual’s
marginal benefit.
126.
One way the government of Alaska could prevent an inefficiently large production of
crab fishing would be to:
A)
subsidize fishermen to encourage competition.
B)
sell exclusive licenses for the right to fish.
C)
offer tax breaks for more efficient boats.
D)
allow competition from foreign fishermen.
Page 29
127.
In London, any motorist entering a particular area in the city center during certain
specified times must pay a congestion fee equal to £11.50 per day, with fines for
noncompliance rising to as high as £130. The congestion fee is:
A)
a Pigouvian subsidy aimed at encouraging the use of city streets.
B)
an attempt to internalize the costs of traffic delays and congestion.
C)
the wrong policy tool for solving the problem of congestion; instead, motorists
should be allowed to make deals to determine when and where they are permitted
to drive.
D)
likely to cause marginal private benefit from road use to decrease.
128.
A Pigouvian tax can lead to the efficient level of production and consumption of:
A)
a public good.
B)
a common resource.
C)
an artificially scarce good.
D)
no goods since all taxes cause inefficiency.
129.
Whenever a species is threatened with extinction, it is likely that:
A)
clearly defined property rights exist.
B)
no one has exclusive property rights to it.
C)
greedy people in society are increasing their share of social surplus.
D)
it is the result of too much government regulation.
130.
The government can intervene to achieve the socially optimal quantity of a common
resource by using which approach(es)?
I. assigning property rights
II. imposing a tax on usage
III. granting a limited number of tradable permits to use the good
A)
I only
B)
II only
C)
I and II only
D)
I, II, and III
131.
The government can intervene to avoid overfishing by using which approach(es)?
I. assigning property rights
II. imposing a tax on usage
III. granting a limited number of tradable fishing permits
A)
I only
B)
II only
C)
I and II only
D)
I, II, and III
Page 30
132.
If policy makers provide only enough tradable permits to provide efficient use of a
common resource, only those who _____ will use the resource.
A)
gain the most
B)
initially obtain the permit
C)
have the largest market share
D)
have monopoly power
133.
Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat
and some diesel fuel can go offshore, lower a crab pot, and harvest king crab. As a
result, this common resource is overused. Which policy choice might produce the
socially optimal king crab harvest?
A)
Alaska subsidizes the purchase of crab boats.
B)
Alaska auctions a limited number of licenses to harvest king crab.
C)
Alaska removes taxes on diesel fuel, which lowers the price of diesel.
D)
The U.S. and Canadian governments remove trade barriers, which allows for more
trade of products like king crab.
Use the following to answer questions 134-137:
Figure: Correcting for Market Failure
134.
(Ref 36-7 Figure: Correcting for Market Failure) Use Figure 36-7: Correcting for
Market Failure. There is an external cost in the market illustrated in the figure, and the
two upward-sloping lines reflect private and social marginal costs. Economists argue
that, in an unregulated private market, too _____ is produced. In the figure, the supply
curve (S1) reflects _____ marginal cost.
A)
little; private
B)
much; private
C)
much; social
D)
little; social and private
Page 31
135.
(Ref 36-7 Figure: Correcting for Market Failure) Use Figure 36-7: Correcting for
Market Failure. There is an external cost in the market illustrated in the figure, and the
two upward-sloping lines reflect private and social marginal costs. If the government
forces the private-sector firms to internalize any external costs:
A)
the supply curve shifts to the right, from S2 to S1.
B)
the supply curve shifts to the left, from S1 to S2.
C)
the supply curve is unaffected.
D)
price per unit decreases.
136.
(Ref 36-7 Figure: Correcting for Market Failure) Use Figure 36-7: Correcting for
Market Failure. There is an external cost in the market illustrated in the figure, and the
two upward-sloping lines reflect private and social marginal costs. If the government
intervenes to correct for the external cost, the new _____ will now reflect _____ costs.
A)
supply curve S1; both private and external
B)
supply curve S2; private but not external
C)
supply curve S2; both private and external
D)
demand curve (not shown); external but not private
137.
(Ref 36-7 Figure: Correcting for Market Failure) Use Figure 36-7: Correcting for
Market Failure. There is an external cost in the market illustrated in the figure, and the
two upward-sloping lines reflect private and social marginal costs. When the
government intervenes to correct for the external cost, the output will _____ from _____
to _____.
A)
fall; W; R
B)
increase; W; R
C)
fall; R; W
D)
fall; W; 0
138.
Which example is considered an artificially scarce good?
A)
a candy bar
B)
a free art exhibit in a city park
C)
a pay-per-view boxing match on cable television
D)
an interstate highway without tolls
139.
Computer software that you can download from the Internet for a price is an artificially
scarce good because it is _____ but _____ in consumption.
A)
nonexcludable; rival
B)
excludable; nonrival
C)
nonexcludable; nonrival
D)
excludable; rival
Page 32
140.
The marginal cost of producing an artificially scarce good is usually equal to:
A)
zero.
B)
the marginal benefit if consumer surplus equals zero.
C)
the average total cost.
D)
its price.
141.
Which example is best characterized as an artificially scarce good?
A)
diamonds because their supply is artificially restricted by monopoly producers
B)
music that is downloadable from the Internet for a fee
C)
a daily newspaper
D)
hot dogs in a sports stadium because the number of suppliers is restricted
142.
The source of inefficiency in the use of artificially scarce goods is similar to the source
of inefficiencies created by:
A)
externalities.
B)
an oligopoly.
C)
price discrimination.
D)
a natural monopoly.
Use the following to answer questions 143-146:
143.
(Ref 36-8 Table: Marginal Benefit, Cost, and Consumer Surplus) Use Table 36-8:
Marginal Benefit, Cost, and Consumer Surplus. The table shows six consumers’
willingness to pay for one iTunes download. If the marginal social cost is constant at $0,
then the efficient price is _____ and consumer surplus is _____.
A)
$0; $37
B)
$1; $36
C)
$4; $33
D)
$5; $32
Page 33
144.
(Ref 36-8 Table: Marginal Benefit, Cost, and Consumer Surplus) Use Table 36-8:
Marginal Benefit, Cost, and Consumer Surplus. The table shows six consumers’
willingness to pay for one iTunes download. If the marginal social cost is constant at
_____, then _____ consumers will purchase this good, and consumer surplus is _____.
A)
$5.50; two; $14
B)
$6; three; $30
C)
$6.50; two; $13
D)
$3; four; $34
145.
(Ref 36-8 Table: Marginal Benefit, Cost, and Consumer Surplus) Use Table 36-8:
Marginal Benefit, Cost, and Consumer Surplus. The table shows six consumers’
willingness to pay for one iTunes download. If the marginal social cost is constant at
_____, then _____ consumers will purchase this good, and consumer surplus is _____.
A)
$6; three; $13
B)
$3.50; four; $20
C)
$11; two; $22
D)
$40; zero; -$37
146.
(Ref 36-8 Table: Marginal Benefit, Cost, and Consumer Surplus) Use Table 36-8:
Marginal Benefit, Cost, and Consumer Surplus. The table shows six consumers’
willingness to pay for one iTunes download. If the marginal social cost is constant at
_____, then _____ consumers will purchase this good, and consumer surplus is _____.
A)
$0; four; $12
B)
$3; four; $22
C)
$13; five; $30
D)
$20; six; $37
147.
Producers of artificially scarce goods face _____ that are similar to those of natural
monopolists; they decline over the relevant range of output.
A)
external benefits
B)
external costs
C)
total fixed costs
D)
average total costs
Page 34
Use the following to answer questions 148-151:
Figure: Demand and Marginal Revenue
148.
(Ref 36-9 Figure: Demand and Marginal Revenue) Use Figure 36-9: Demand and
Marginal Revenue. The figure refers to a software upgrade. The producer incurred fixed
costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to
download the upgrade is zero. To maximize profit, the producer will set a price of
_____ and produce _____ upgrades.
A)
$100; 125,000
B)
$100; 250,000
C)
$50; 125,000
D)
$0; 250,000
149.
(Ref 36-9 Figure: Demand and Marginal Revenue) Use Figure 36-9: Demand and
Marginal Revenue. The figure refers to a software upgrade. The producer incurred fixed
costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to
download the upgrade is zero. What is the deadweight loss associated with the
profit-maximizing price and quantity of the upgrade?
A)
$0
B)
$1.25 million
C)
$3.125 million
D)
$6.25 million
Page 35
150.
(Ref 36-9 Figure: Demand and Marginal Revenue) Use Figure 36-9: Demand and
Marginal Revenue. The figure refers to a software upgrade. The producer incurred fixed
costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to
download the upgrade is zero. What is the efficient price of the upgrade?
A)
$0
B)
$50
C)
$75
D)
$100
151.
(Ref 36-9 Figure: Demand and Marginal Revenue) Use Figure 36-9: Demand and
Marginal Revenue. The figure refers to a software upgrade. The producer incurred fixed
costs of $10 million to produce the upgrade; the marginal cost of allowing consumers to
download the upgrade is zero. What is the efficient level of output for the upgrade?
A)
0
B)
80,000
C)
125,000
D)
250,000
152.
Pharmaceutical companies typically face very high fixed costs when developing new
drugs. The marginal cost of producing a drug after development is very low. When these
companies set price and output to maximize profit, patients pay a _____ price for _____
amounts of the drug than are socially optimal.
A)
lower; lower
B)
higher; higher
C)
lower; higher
D)
higher; lower
153.
A very large museum could accommodate many more visitors than it does without
reducing the enjoyment of the visitors if it did not charge such a high price for
admission. Visits to the museum are a(n):
A)
private good.
B)
public good.
C)
common resource.
D)
artificially scarce good.
Page 36
Use the following to answer questions 154-174:
Figure: Market Failure
154.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. In the figure,
which point coincides with the equilibrium for a competitive market?
A)
H
B)
I
C)
J
D)
K
155.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. In the figure, the
equilibrium price is _____, and the equilibrium quantity is _____ for a competitive
market.
A)
A; E
B)
A; G
C)
B; F
D)
C; E
156.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. In the figure, if
production in this competitive market is at quantity E:
A)
marginal benefit is equal to marginal cost.
B)
marginal benefit is less than marginal cost.
C)
marginal benefit is greater than marginal cost.
D)
price is equal to marginal cost and greater than marginal benefit.
Page 37
157.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. In the figure, if
production in this competitive market is at quantity F:
A)
marginal benefit is equal to marginal cost.
B)
marginal benefit is less than marginal cost.
C)
marginal benefit is greater than marginal cost.
D)
price is equal to marginal cost and greater than marginal benefit.
158.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. In the figure, if
production in this competitive market is at quantity G:
A)
marginal benefit is less than marginal cost.
B)
marginal benefit is equal to marginal cost.
C)
marginal benefit is greater than marginal cost.
D)
price is equal to marginal cost and less than marginal benefit.
159.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. How much is
Ann willing to pay for E streetlights?
A)
0
B)
A
C)
B
D)
C
160.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A–C. How much is
Ann willing to pay for F streetlights?
A)
0
B)
A
C)
B
D)
C
Page 38
161.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. How much is
Ann willing to pay for G streetlights?
A)
0
B)
A
C)
B
D)
C
162.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. If Ann is the only
person to pay for the streetlights, how many lights will be provided?
A)
0
B)
E
C)
F
D)
G
163.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. The marginal
social benefit of F streetlights is:
A)
0.
B)
B.
C)
less than B.
D)
greater than B.
Page 39
164.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. The marginal
social benefit of G streetlights is:
A)
0.
B)
A.
C)
B.
D)
C.
165.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. Providing E
streetlights is _____ because the marginal social benefit is _____ the marginal cost.
A)
efficient; equal to
B)
efficient; greater than
C)
inefficient; greater than
D)
inefficient; less than
166.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. Providing F
streetlights is _____ because the marginal social benefit is _____ the marginal cost.
A)
efficient; equal to
B)
efficient; greater than
C)
inefficient; greater than
D)
inefficient; less than
Page 40
167.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. Providing G
streetlights is _____ because the marginal social benefit is _____ the marginal cost.
A)
efficient; equal to
B)
efficient; greater than
C)
inefficient; greater than
D)
inefficient; less than
168.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
supply curve represents the marginal cost of providing streetlights in a neighborhood
where only two people, Ann and Joe, reside. The demand curve represents the marginal
benefit that Ann receives from the streetlights. Suppose that Joe’s marginal benefit from
the streetlights is a constant amount equal to the vertical distance A-C. The market
would provide _____ streetlights. The efficient quantity of streetlights is _____.
A)
0; F
B)
F; F
C)
E; F
D)
F; G
169.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. Without government intervention, the market will
produce _____ pounds of shrimp.
A)
0
B)
E
C)
F
D)
G
170.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. Without government intervention, the price of shrimp
will be _____ per pound.
A)
0
B)
A
C)
B
D)
C
Page 41
171.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. The output of F is _____ because the marginal social
benefit is _____ the marginal cost.
A)
efficient; equal to
B)
efficient; greater than
C)
inefficient; greater than
D)
inefficient; less than
172.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. At output F, _____ shrimp is being produced.
A)
too much
B)
not enough
C)
the efficient amount of
D)
the socially optimum amount of
173.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. The efficient output of shrimp is:
A)
0.
B)
E.
C)
F.
D)
G.
174.
(Ref 36-10 Figure: Market Failure) Use Figure 36-10: Market Failure. Suppose that the
figure represents the demand for and marginal private cost per pound of shrimp in the
bay. The additional cost of the shrimp due to the depletion of the common resource is
equal to the vertical distance A-C. The efficient price of shrimp is:
A)
0.
B)
A.
C)
B.
D)
C.
175.
A concert is excludable if the manager of the concert hall can prevent people who do not
have a ticket from entering.
A)
True
B)
False
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176.
Airplane seats are rival in consumption.
A)
True
B)
False
177.
A good is excludable if nonpayers can be prevented from consuming it.
A)
True
B)
False
178.
Goods are said to be rival in consumption because they are substitutes in consumption,
such as coffee and tea or road travel and air travel.
A)
True
B)
False
179.
Any road without a toll can be thought of as a common resource since it is
nonexcludable and rival in consumption.
A)
True
B)
False
180.
In a market economy, goods that are nonexcludable and nonrival will be produced at
inefficiently low levels (if they are produced at all), and goods that are excludable but
nonrival in consumption will be produced at inefficiently low consumption levels.
A)
True
B)
False
181.
In a market economy, goods that are nonrival in consumption are subject to inefficiently
low production.
A)
True
B)
False
182.
A public good is one that is generally available for consumption by the public; that is, a
person does not have to be a member of a special group or a club to be able to consume
it. A good example would be milk for sale in a grocery store that is open to the public.
A)
True
B)
False
Page 43
183.
For a public good, the marginal social benefit will be higher than any individual’s
marginal benefit of consumption.
A)
True
B)
False
184.
The efficient level of provision of a public good is the level at which its marginal social
benefit is equal to the marginal social cost of its production.
A)
True
B)
False
185.
The problem with public goods is similar to the problem with positive externalities: the
marginal social benefit exceeds any individual’s marginal benefit.
A)
True
B)
False
186.
For a public good, the marginal social benefit is the horizontal summation of each
individual’s marginal benefit curve.
A)
True
B)
False
187.
A low voter turnout can be explained by noting that political engagement and action is
arguably a kind of public good in that people who don’t engage or vote can free-ride on
those who do.
A)
True
B)
False
188.
A city government engages in cost-benefit analysis when it estimates the social costs
and social benefits of providing trash-collection services.
A)
True
B)
False
189.
Since individuals ignore the effect of their use on the amount of a resource remaining
for others, common resources are subject to overuse when left to the private market.
A)
True
B)
False
Page 44
190.
To ensure efficient use of a common resource, the government could assign property
rights.
A)
True
B)
False
191.
Artificially scarce goods are inefficiently consumed because the market price is zero.
A)
True
B)
False
192.
Pay-per-view movies are an example of a common resource.
A)
True
B)
False
193.
The efficient price for a good that is nonrival in consumption is necessarily greater than
zero.
A)
True
B)
False
194.
When a good is nonrival in consumption, it means that the marginal cost of any
individual’s consumption is zero.
A)
True
B)
False
195.
A movie on a Blu-ray disc is a private good, but a pay-per-view movie from your cable
company is considered an artificially scarce good. How are they similar, and what
makes them different?
196.
The fish in the local river are considered a common resource, but the city’s sanitation
work, which keeps the river clean enough for people to fish and keep their catch, is
considered a public good. How are they similar, and what makes them different?
197.
The federal government provides national defense. Why would it be unlikely for
national defense to be provided by a private entrepreneur?
Page 45
198.
Suppose that you live in a community that relies on clean drinking water from a nearby
lake. Lately, you have noticed that the quality of the water has deteriorated as pollution
washed into the lake. An editorial in the local newspaper suggests that all residents
donate money to clean up the lake. Why would this suggestion be unlikely to succeed?
199.
Colleges and universities solicit their alumni for donations that go toward the operation
and advancement of the college. How does this present a potential free-rider problem?
How can colleges and universities attempt to lessen the free-rider problem and increase
alumni contributions?
200.
(Table: Marginal Benefit of Fire Hydrants) Use Table: Marginal Benefit of Fire
Hydrants. Suppose that the marginal cost of installing a hydrant is $10.
A) What is the most that Nancy would be willing to pay to have one hydrant installed
in the neighborhood?
B) If Nancy had to pay for fire hydrants on her own, how many hydrants would there
be?
C) What is the optimal number of fire hydrants in the neighborhood?
201.
The North Woods is a public area supporting such a large moose population that the
government sees no reason to regulate or limit the harvest of the moose.
A) From an economic point of view, how might this situation eventually lead to
market failure?
B) You are appointed by the governor to regulate the harvest of moose from the North
Woods. How could you use the three tools described in the text to maintain the efficient
level of moose harvest?
202.
Many cities have tollbooths on busy highways as a way to reduce congestion. To drive
on this toll road, the driver must pay a price at the booth before proceeding. From an
economist’s point of view, why would a toll road be part of the solution to the problem
of traffic congestion?
Page 46
203.
More and more consumers are watching their favorite network television programs from
their computer. Suppose that a network or cable company begins to charge a small fee to
access and download an episode of a popular program. For a supplier of television
programming, the marginal cost of supplying the episode to one more customer is zero.
A) What type of good is this Internet television episode download? Explain.
B) Will the efficient quantity of television downloads be provided? Explain.
204.
(Table: Ultimate Fighting Marginal Benefit) Use Table: Ultimate Fighting Marginal
Benefit. Most ultimate-fighting bouts are available on a pay-per-view basis from cable
companies. The marginal cost of making the bout available to one additional consumer
is zero.
A) If all five fans could view the upcoming fight without paying, how many would do
so, and what would be the total consumer surplus to those consumers?
B) If the cable company charges $20 to view the championship bout, which consumers
will pay to view it? What is the total consumer surplus for those fans? What is the total
producer surplus for the cable company? How large is the deadweight loss from this
pricing strategy?
205.
Goods that are nonrival in consumption and nonexcludable are _____ goods.
A)
common resource
B)
private
C)
public
D)
normal
206.
A good that is nonexcludable but rival in consumption is a _____ good.
A)
common resource
B)
private
C)
public
D)
normal
Page 47
207.
_____ are a good that is rival in consumption and nonexcludable.
A)
Public parks
B)
Public policy, such as national economic policy
C)
Private beaches
D)
National defense
208.
Economic policymaking is _____ in consumption and _____.
A)
rival; nonexcludable
B)
nonrival; nonexcludable
C)
nonrival; excludable
D)
rival; excludable
209.
On hot summer days, beach parking lots are usually full by early morning, even though
one must pay to park there. Parking at such lots is _____ in consumption and _____.
A)
rival; nonexcludable
B)
rival; excludable
C)
nonrival; nonexcludable
D)
nonrival; excludable
210.
A small public park in a large town with many other parks often has very few visitors
because of its size. There is no fee to enter the park, but few people visit it since other
parks have more amenities. This park is _____ in consumption and _____.
A)
rival; excludable
B)
nonrival; excludable
C)
nonrival; nonexcludable
D)
rival; nonexcludable
211.
A market produces too much of a good when the price of the good is:
A)
greater than the marginal social cost of providing it.
B)
equal to the marginal social cost of providing it.
C)
less than the marginal social cost of providing it.
D)
equal to 1.
212.
When goods are rival in consumption and excludable, perfectly competitive markets:
A)
will consistently produce more than the efficient quantity of the good.
B)
will produce an efficient quantity of the good.
C)
will consistently produce less than the efficient quantity of the good.
D)
will find that consumers are unwilling to purchase the good.
Page 48
213.
Encouragement of voluntary contributions to the provision of public goods:
A)
will always lead to the socially optimal provision of public goods.
B)
may lead to the provision of public goods.
C)
will result in too much of the public good being provided.
D)
is required to provide private goods.
214.
Nikos and Camila are working on a team project for a course. They will receive the
same grade for the project. They have done a great job, but they have not kept track of
their bibliography sources very well, although they both have all of the information.
Camila knows that Nikos will eventually do the bibliography since Nikos does not like
to turn in incomplete work. As a result:
A)
Camila will free-ride on Nikos’s labor.
B)
Nikos will free-ride on Camila’s labor.
C)
neither will free-ride since they both earn the same grade.
D)
free-riding is not relevant to this issue since no money is involved.
215.
Every few months, public radio announces a call for pledge support. During this time, it
asks listeners to contribute to their local public radio station. Although they raise money
during this time, it often falls short of the amount they wish to raise because:
A)
they do not make the pledge period long enough.
B)
listeners know they will be able to hear public radio, even if they don’t contribute.
C)
public radio free-rides on the listeners.
D)
the marginal social cost equals the marginal social benefit of public radio listening.
216.
When a good is nonexcludable:
A)
consumers will pay the market price for it.
B)
producers will produce too much of it.
C)
a free-rider problem can arise.
D)
production will be efficient.
217.
When a good is nonrival in consumption, its most efficient price is:
A)
zero.
B)
determined by producers.
C)
greater than zero.
D)
equal to the market price of a similar rival good.
Page 49
218.
If a good is nonrival in consumption and a positive price is charged by the supplier:
A)
more people want to use this good at the supplier’s price than at the efficient price.
B)
consumption of it is inefficiently low.
C)
free-riding occurs.
D)
there is a socially optimal level of consumption.
219.
(Scenario: Ben and Nik) Use Scenario: Ben and Nik. At Q2 in the figure, the marginal
social benefit from the last unit of the public good is:
Scenario: Ben and Nik
Ben and Nik are the only members of a community. They have revealed the marginal
private benefits they each receive from a public good whose marginal social benefit is
known. In addition, the marginal social cost (MSC) of the public good is known and is
constant.
A)
equal to the marginal social cost.
B)
equal to P4 + P3.
C)
the optimal level of provision of the public good.
D)
zero for Nik.
Page 50
220.
(Scenario: Ben and Nik) Use Scenario: Ben and Nik. In the figure, Q4:
Scenario: Ben and Nik
Ben and Nik are the only members of a community. They have revealed the marginal
private benefits they each receive from a public good whose marginal social benefit is
known. In addition, the marginal social cost (MSC) of the public good is known and is
constant.
A)
is the socially optimal level of provision of the public good.
B)
is equal to P4 + P3 in marginal social benefits.
C)
represents an amount at which the MSB is greater than the MSC.
D)
will not be produced since neither Ben nor Nik finds any benefit in it at this level.
Page 51
221.
(Scenario: Ben and Nik) Use Scenario: Ben and Nik. At all levels of provision of the
public good:
Scenario: Ben and Nik
Ben and Nik are the only members of a community. They have revealed the marginal
private benefits they each receive from a public good whose marginal social benefit is
known. In addition, the marginal social cost (MSC) of the public good is known and is
constant.
A)
Ben places a higher value on the public good than Nik.
B)
the MSC is less than the MSB.
C)
the optimal level is not attained.
D)
the private marginal benefits cannot be determined.
222.
If at the quantity determined by private costs and benefits, the marginal social benefit of
a public good is greater than the marginal social cost of providing the good:
A)
the private market will best determine how much of the good will be provided and
to whom.
B)
a community would be better off if provision of the good were to increase.
C)
the community will not provide the good.
D)
free riding will not occur, so the private market will provide the socially optimal
amount.
223.
A common resource is _____ in consumption.
A)
excludable and rival
B)
nonexcludable and rival
C)
excludable and nonrival
D)
nonexcludable and nonrival
Page 52
224.
An example of a common resource is:
A)
coffee sold in coffee shops.
B)
any type of public good.
C)
any private good that is monopolized.
D)
fishing in the ocean.
225.
The private market will lead to _____ of clean air because _____.
A)
too little consumption; it is nonexcludable but rival in consumption
B)
too much consumption; it is nonexcludable but rival in consumption
C)
production of the socially optimal amount; the marginal cost is zero
D)
government provision; it is a public good
226.
Common resource goods are similar to:
A)
public goods because they are both nonexcludable and nonrival in consumption.
B)
goods with negative externalities because not all users take into account the
external costs imposed on society.
C)
private goods because they are both excludable and rival.
D)
artificially scarce goods because they are both are excludable and nonrival in
consumption.
227.
After many years, a small community builds a toll road but discovers that it is not used
very much. If it wishes for the road to be used at the socially optimal level, the
community should:
A)
set the toll higher.
B)
set the toll equal to $1.
C)
set the toll lower.
D)
build another toll road.
228.
Assigning property rights helps correct the problems associated with common resources:
A)
because it allows property owners to exclude users and to manage the resource
more efficiently.
B)
because it allows the government to determine the amount that would lead to the
socially optimal outcome.
C)
because it makes the good nonrival in consumption.
D)
and therefore allows the market to better assess the marginal social benefits.
Page 53
229.
Imposing a Pigouvian tax on a good, establishing a system of tradable licenses, and
assigning property rights are methods to alleviate the problems associated with:
A)
private goods.
B)
positive externalities.
C)
public goods.
D)
common resources.
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