Exam 17: Public Goods Common Resources

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:

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.

The free-rider problem is a direct result of:

Use the following to answer questions: -(Table: Street Cleanings) Look at the table Street Cleanings. Suppose that the marginal cost of each street cleaning is $18. Which statement is TRUE?

Which of the following goods is most likely a public good?

Airplane seats are rival in consumption.

Use the following to answer questions: Figure: Market Failure -(Figure: Market Failure) Look at the figure Market Failure. Suppose it represents the demand for and marginal 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 AC. Without government intervention, the market will produce _____ pounds of shrimp.

Use the following to answer questions: Figure: Demand and Marginal Revenue -(Figure: Demand and Marginal Revenue) The figure Demand and Marginal Revenue 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.

Encouragement of voluntary contributions to the provision of goods:

Use the following to answer questions: -(Table: Security in a Residential Community) Look at the table Security in a Residential Community. The marginal cost of hiring the third security guard is _____, and the marginal social benefit is _____.

Use the following to answer questions: -(Table: Marginal Benefit from Additional Streetlights) Look at the table 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?

Use the following to answer questions: Figure: Market Failure -(Figure: Market Failure) In the figure Market Failure, where is the equilibrium for a competitive market?

Common resource goods are similar to:

When Joe watched a television movie, his viewing was _____ in consumption because other people _____ able to view the movie at the same time Joe did.

Use the following to answer questions: -(Table: Street Cleanings) Look at the table 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.

Use the following to answer questions: -(Table: Marginal Benefit, Cost, and Consumer Surplus) The table Marginal Benefit, Cost, and Consumer Surplus 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 _____.

Consumption of a common resource is inefficiently too _____ because the marginal social cost of the resource is _____ than the private marginal cost.

The problem with common resources is similar to the problem with negative externalities because:

A concert is excludable if the manager of the concert hall can prevent people who do not have a ticket from entering.

To ensure efficient use of a common resource, the government could assign property rights.