Question 1

National defence is a classic example of a public good because:

Accepted Answer

A)  it is provided by the government 
B)  private security forces would make too much money 
C)  everyone agrees that some level of national defence is important 
D)  too many people would be free-riders if private security forces tried to provide it

Question 2

If it is common knowledge that a given national park has become overused, why might raising the entrance fee to the park NOT solve the problem of overcrowding?

Accepted Answer

A)  no-one would go to the park if the fees were increased 
B)  additional revenue from the higher fee might not be used for the betterment of the park 
C)  the lower usage might more than offset the higher entrance fees, resulting in a loss of revenue 
D)  after they have spent their time and money in travelling to the park, people might not be discouraged from visiting the park by a higher entrance fee

Question 3

For both public goods and common resources, an externality arises because:

Accepted Answer

A)  something of value has no price attached to it 
B)  the goods are undervalued by society 
C)  the social optimum level of output is greater than market equilibrium 
D)  all of the above are true

Question 4

Some goods can switch between being public goods and private goods, depending on the circumstances.

Accepted Answer

A) True 
 B)False

Question 5

A fireworks display is a rival good because one person's enjoyment of the fireworks does not reduce anyone else's enjoyment.

Accepted Answer

A) True 
 B)False

Question 6

Cost-benefit analysis can account for risk by adjusting benefits and costs by their probability of occurrence.

Accepted Answer

A) True 
 B)False

Question 7

Some advocates of anti-poverty programs claim that fighting poverty is a public good. Explain what these advocates mean by classifying charity as a public good. What does this have to do with the need for government intervention?

Accepted Answer

The answer of Some advocates of anti-poverty programs claim that...

Question 8

Countries that have completely outlawed domestic elephant hunting are finally seeing elephant populations start to rise.

Accepted Answer

A) True 
 B)False

Question 9

Government needs only to point out which goods the private markets are failing to provide efficiently and then allow the private markets to correct themselves.

Accepted Answer

A) True 
 B)False

Question 10

Only goods that are produced in markets have value to society.

Accepted Answer

A) True 
 B)False

Question 11

Government policy is of little use for properly allocating those goods that do not have prices attached to them.

Accepted Answer

A) True 
 B)False

Question 12

International disputes over fish, led to three 'cod-wars' between Great Britain and Iceland in the 1970s.

Accepted Answer

A) True 
 B)False

Question 13

Roads can be considered either public goods or common resources, depending on how congested they are.

Accepted Answer

A) True 
 B)False

Question 14

Government agencies subsidise basic research because:

Accepted Answer

A)  the private market devotes too few resources to basic research 
B)  the general knowledge developed through basic research can be used without charge 
C)  the social benefit of additional knowledge is perceived to be greater than the cost of subsidies 
D)  all of the above are true

Question 15

The American alligator is no longer endangered and is farmed in several Southern US states. The Chinese alligator is highly endangered. Which species is a common resource and which species is more like a private good?

Accepted Answer

The answer of The American alligator is no longer endangered...

Question 16

In the Tragedy of the Commons, joint action among the individual citizens would be necessary to solve their common resource problem, if government does not intervene.

Accepted Answer

A) True 
 B)False

Question 17

One person's use of common resources does not reduce the enjoyment other people receive from the resource.

Accepted Answer

A) True 
 B)False

Question 18

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item from the menu and they will share all dishes. When the final bill for the meal comes, they decide that they will split the cost evenly among each of the people at the table. In this particular case, a Tragedy of the Commons problem is likely because:

Accepted Answer

A)  each person has an incentive to eat as fast as possible, since their individual rate of consumption will not affect their individual cost 
B)  there is a consumption externality associated with eating the food on the table 
C)  when one person eats, he may not take into account how his choice affects his friends 
D)  all of the above are true

Question 19

'What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others'. This statement is attributed to:

Accepted Answer

A)  Socrates 
B)  Plato 
C)  Aristotle 
D)  Adam Smith

Question 20

A common theme among examples of market failure is that:

Accepted Answer

A)  the good being provided always harms society in some systematic way 
B)  some item of value does not have an owner with the legal authority to control it 
C)  cost-benefit analysis is likely to lead to implementation policies that promote private provision of goods and services 
D)  there are regulations that prohibit the efficient functioning of private markets

Exam 11: Public Goods and Common Resources

National defence is a classic example of a public good because:

If it is common knowledge that a given national park has become overused, why might raising the entrance fee to the park NOT solve the problem of overcrowding?

For both public goods and common resources, an externality arises because:

Some goods can switch between being public goods and private goods, depending on the circumstances.

A fireworks display is a rival good because one person's enjoyment of the fireworks does not reduce anyone else's enjoyment.

Cost-benefit analysis can account for risk by adjusting benefits and costs by their probability of occurrence.

Some advocates of anti-poverty programs claim that fighting poverty is a public good. Explain what these advocates mean by classifying charity as a public good. What does this have to do with the need for government intervention?

Countries that have completely outlawed domestic elephant hunting are finally seeing elephant populations start to rise.

Government needs only to point out which goods the private markets are failing to provide efficiently and then allow the private markets to correct themselves.

Only goods that are produced in markets have value to society.

Government policy is of little use for properly allocating those goods that do not have prices attached to them.

International disputes over fish, led to three 'cod-wars' between Great Britain and Iceland in the 1970s.

Roads can be considered either public goods or common resources, depending on how congested they are.

Government agencies subsidise basic research because:

The American alligator is no longer endangered and is farmed in several Southern US states. The Chinese alligator is highly endangered. Which species is a common resource and which species is more like a private good?

In the Tragedy of the Commons, joint action among the individual citizens would be necessary to solve their common resource problem, if government does not intervene.

One person's use of common resources does not reduce the enjoyment other people receive from the resource.

'What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others'. This statement is attributed to:

A common theme among examples of market failure is that: