Question 1

Explain how a free rider may arise on a public good and describe the consequences of the free rider problem.

Accepted Answer

Since public goods are nonexcludable, it

Question 2

What quantity of public goods should the government produce?

Accepted Answer

A)  the quantity that maximizes the sum of producer and consumer surplus 
B)  the quantity where consumer surplus is maximized 
C)  the quantity where consumer surplus is maximized and producer surplus is minimized 
D)  the quantity where the total benefits equal the total costs 
A)  the quantity that maximizes the sum of producer and consumer surplus 
B)  the quantity where consumer surplus is maximized 
C)  the quantity where consumer surplus is maximized and producer surplus is minimized 
D)  the quantity where the total benefits equal the total costs

Question 3

Common resources are not individually owned, which creates the incentive for their overuse and overconsumption.

Accepted Answer

A) True 
 B)False

Question 4

The tragedy of the commons problem is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 5

Public goods are:

Accepted Answer

A)  excludable and rival. 
B)  excludable and nonrival. 
C)  nonexcludable and rival. 
D)  nonexcludable and nonrival. 
A)  excludable and rival. 
B)  excludable and nonrival. 
C)  nonexcludable and rival. 
D)  nonexcludable and nonrival.

Question 6

During the Holy Roman Empire, Germany's Rhine River was a major trade artery (and provided tax revenue). The numerous castles along the Rhine were toll stations, with most merchants having to travel sizable lengths of the river to arrive at their destination. Although the Emperors closely guarded the right to charge a toll, local nobility would occasionally break the law and build a castle along the Rhine to charge a toll (hence the origin of the phrase, "robber baron"). When possible, such "robber castles" were destroyed to prevent the tragedy of the commons. What is the commons resource here?

Accepted Answer

A)  toll revenue 
B)  trade 
C)  castles 
D)  the Rhine 
A)  toll revenue 
B)  trade 
C)  castles 
D)  the Rhine

Question 7

Nonexcludability cannot exist at the same time as market efficiency in quantity.

Accepted Answer

A) True 
 B)False

Question 8

Tuna in the ocean is a common resource because:

Accepted Answer

A)  it is difficult to prevent people from fishing in the ocean and every time someone catches tuna there is less tuna for someone else. 
B)  all tuna are identical (i.e., a homogenous good) and sold in competitive markets. 
C)  there is an abundance of tuna and no one fisherman can affect the market equilibrium output. 
D)  None of the answers is correct. 
A)  it is difficult to prevent people from fishing in the ocean and every time someone catches tuna there is less tuna for someone else. 
B)  all tuna are identical (i.e., a homogenous good) and sold in competitive markets. 
C)  there is an abundance of tuna and no one fisherman can affect the market equilibrium output. 
D)  None of the answers is correct.

Question 9

Explain whether there is a free-rider problem with mosquito control and town parks. If so, how can it be addressed?

Accepted Answer

Both mosquito control and a town park ar

Question 10

Economic markets have a hard time producing the efficient quantity of a public good because of forced riders.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following solutions for public goods funding avoids both the problems of "forced riders" and "free riders"?

Accepted Answer

A)  widespread taxation 
B)  advertising 
C)  donation-based funding 
D)  None of the answers is correct. 
A)  widespread taxation 
B)  advertising 
C)  donation-based funding 
D)  None of the answers is correct.

Question 12

Private goods are both:

Accepted Answer

A)  rival and nonexcludable. 
B)  nonrival and excludable. 
C)  nonrival and nonexcludable. 
D)  rival and excludable. 
A)  rival and nonexcludable. 
B)  nonrival and excludable. 
C)  nonrival and nonexcludable. 
D)  rival and excludable.

Question 13

A free rider is a person who:

Accepted Answer

A)  avoids paying taxes by using tax code loopholes. 
B)  produces goods at no cost. 
C)  receives the benefits of a good but avoids paying for it. 
D)  will purchase products only when on sale. 
A)  avoids paying taxes by using tax code loopholes. 
B)  produces goods at no cost. 
C)  receives the benefits of a good but avoids paying for it. 
D)  will purchase products only when on sale.

Question 14

A fisherman has an incentive to overfish because catching less fish today doesn't increase the number of fish he can catch in the future.

Accepted Answer

A) True 
 B)False

Question 15

The sun has features of a:

Accepted Answer

A)  public good -it shines on everyone 
B)  common resource-everyone in society can use it for warmth and light. 
C)  rival good that can easily be made excludable. 
D)  private good since solar energy can be marketed. 
A)  public good -it shines on everyone 
B)  common resource-everyone in society can use it for warmth and light. 
C)  rival good that can easily be made excludable. 
D)  private good since solar energy can be marketed.

Question 16

Public roads sometimes get congested, suggesting that public roads are:

Accepted Answer

A)  public goods. 
B)  rival. 
C)  private goods. 
D)  experiencing a free rider problem. 
A)  public goods. 
B)  rival. 
C)  private goods. 
D)  experiencing a free rider problem.

Question 17

Goods that are rival in consumption include both:

Accepted Answer

A)  public goods and common resources. 
B)  common resources and natural monopolies. 
C)  common resources and private goods. 
D)  public goods and private goods. 
A)  public goods and common resources. 
B)  common resources and natural monopolies. 
C)  common resources and private goods. 
D)  public goods and private goods.

Question 18

Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction?

Accepted Answer

A)  The kind of fishing equipment that is used does not allow for smaller catches. 
B)  There is a lack of well-defined property rights over the stock of tuna fish in the sea. 
C)  The fishermen do not realize that their way of life will also become extinct. 
D)  Their governments have not considered tradable allowances as a solution. 
A)  The kind of fishing equipment that is used does not allow for smaller catches. 
B)  There is a lack of well-defined property rights over the stock of tuna fish in the sea. 
C)  The fishermen do not realize that their way of life will also become extinct. 
D)  Their governments have not considered tradable allowances as a solution.

Question 19

Voting and other democratic procedures:
I. provide information about an individual's preferences for public goods.
II. result in an efficient allocation of resources.
III. result in the government underproducing public goods, just like the market would.

Accepted Answer

A)  I and II only 
B)  I and III only 
C)  III only 
D)  I only 
A)  I and II only 
B)  I and III only 
C)  III only 
D)  I only

Question 20

If one person uses a good and thereby diminishes the use of the good by others, the good is rival.

Accepted Answer

A) True 
 B)False

Exam 19: Public Goods and the Tragedy of the Commons

Explain how a free rider may arise on a public good and describe the consequences of the free rider problem.

What quantity of public goods should the government produce?

Common resources are not individually owned, which creates the incentive for their overuse and overconsumption.

The tragedy of the commons problem is a type of negative externality.

Public goods are:

Nonexcludability cannot exist at the same time as market efficiency in quantity.

Tuna in the ocean is a common resource because:

Explain whether there is a free-rider problem with mosquito control and town parks. If so, how can it be addressed?

Economic markets have a hard time producing the efficient quantity of a public good because of forced riders.

Which of the following solutions for public goods funding avoids both the problems of "forced riders" and "free riders"?

Private goods are both:

A free rider is a person who:

A fisherman has an incentive to overfish because catching less fish today doesn't increase the number of fish he can catch in the future.

The sun has features of a:

Public roads sometimes get congested, suggesting that public roads are:

Goods that are rival in consumption include both:

Tuna fish are being driven to extinction because of overfishing. If all the fishermen know about this, why don't they fish less to slow down the extinction?

Voting and other democratic procedures: I. provide information about an individual's preferences for public goods. II. result in an efficient allocation of resources. III. result in the government underproducing public goods, just like the market would.

If one person uses a good and thereby diminishes the use of the good by others, the good is rival.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters