Deck 15: Public Goods, Externalities, and Government Behavior

Question 1

Goods that exhibit nonrivalry in consumption and nonexcludability create a(n)

A)private good problem.
B)adverse selection problem.
C)asymmetric information problem.
D)free-rider problem.
E)principal agent problem.

Answer 1

D

Question 2

A free-rider problem occurs when the consumption of a good is excludable.

Answer 2

False

Question 3

A lighthouse has the feature of rivalry.

Answer 3

False

Question 4

National defense is a good example of a free-rider problem.

Question 5

An example of a public good is

A)education.
B)cable TV.
C)milk.
D)national defense.
E)bottled water.

Question 6

An example of a good for which there is rivalry in consumption is

A)national defense.
B)clean air.
C)grapes.
D)education.
E)a radio signal transmitted through the air.

Question 7

A public good is any good produced by the government.

Question 8

The biggest government-produced item that serves the economy as a whole is

A)the postal service.
B)police protection.
C)national defense.
D)education.
E)highways.

Question 9

The free-rider nature of a good prevents the private market from supplying the good.

Question 10

A public good exhibits nonrivalry in consumption and is nonexcludable.

Question 11

Information has the features of a(n)

A)exclusive good.
B)public good.
C)private property right.
D)private good.
E)rivalrous and excludable good.

Question 12

Consumption of a public good has the characteristics of rivalry and excludability.

Question 13

A private firm would have difficulty producing and selling

A)grapes.
B)cars.
C)hamburgers.
D)national defense.
E)lumber.

Question 14

A good or service that is characterized by nonrivalry in consumption and nonexcludability is called a(n)

A)free good.
B)economic good.
C)public good.
D)private good.
E)noneconomic good.

Question 15

A producer cannot at low cost exclude people from the benefits of

A)computers.
B)grapes.
C)national defense.
D)lumber.
E)cars.

Question 16

Private markets do not provide national defense because it is impossible to exclude any single individual from receiving the benefit of national defense.

Question 17

The aspect of a good in which one person's increased consumption of it does not decrease the amount available for consumption by others is called

A)exclusiveness.
B)nonexcludability.
C)rivalry.
D)nonrivalry.
E)excludability.

Question 18

Federal, state, and local governments would be least likely to produce

A)computers.
B)highways.
C)national defense.
D)police protection.
E)the postal service.

Question 19

A free-rider problem occurs when

A)people who pay for a good do not benefit from the good.
B)people who do not pay for a good benefit from the good.
C)no one benefits from the good.
D)no firm produces the good.
E)the good does not exist.

Question 20

A lighthouse

A)can project a light that simultaneously benefits many ships that pass.
B)is a service that is always provided by the government.
C)provides the feature of rivalry in the consumption of light.
D)can easily exclude ships from using its light if the ship owners do not pay.
E)can easily charge its users for the services provided.

Question 21

Because of the free-rider problem associated with postal services, the government provides postal delivery.

Question 22

How is technology changing the public good features of television broadcasting?

Question 23

The costs of government services

A)include the dollar costs and any deadweight losses from the increased taxes needed to finance the services.
B)include the dollar costs but do not include any deadweight losses from the increased taxes needed to finance the services.
C)include neither the dollar costs nor any deadweight losses from the increased taxes needed to finance the services.
D)do not include the dollar costs but do include any deadweight losses from the increased taxes needed to finance the services.
E)are always considered to be zero.

Question 24

What is a free-rider problem and how does the government deal with this type of problem?

Question 25

Once a station broadcasts an unscrambled radio program over the airwaves,

A)everyone is willing to pay a market price for it.
B)only one listener can tune in at a time.
C)the station can collect revenues easily from listeners.
D)anyone can tune in to it.
E)the program becomes a private good.

Question 26

Modern technology is constantly changing the degree to which particular goods exhibit nonrivalry and nonexcludability.

Question 27

A user fee can be used to solve the free-rider problem if the good is totally nonexcludable.

Question 28

A direct survey regarding the willingness of consumers to pay for a project that may benefit them is called a

A)tax credit.
B)tax.
C)contingent valuation.
D)marginal benefit.
E)user fee.

Question 29

A government will increase the supply of a public good as long as the marginal benefit exceeds the marginal cost of supplying the good.

Question 30

Government production of a good makes it a public good.

Question 31

The government provides all public goods.

Question 32

Postal delivery is a service that has

A)rivalry in consumption and excludability.
B)none of these.
C)nonrivalry in consumption and excludability.
D)rivalry in consumption and nonexcludability.
E)nonrivalry in consumption and nonexcludability.

Question 33

The government provides national defense because free riders make it difficult for private markets to supply the socially desirable amount.

Question 34

An example of a good produced by the government that does not have the features of a public good is

A)the judicial and legal system.
B)postal delivery.
C)police protection.
D)national defense.
E)highways.

Question 35

Balancing the costs and benefits of a good or service is called

A)cost minimization.
B)cost-benefit analysis.
C)marginal revenue analysis.
D)profit maximization.
E)average benefit analysis.

Question 36

A fee charged for the use of a good normally provided by the government is called a

A)private remedy.
B)user fee.
C)tax.
D)sales tax.
E)revenue enhancer.

Question 37

It is easy to measure the benefits of government-provided services.

Question 38

Radio and television broadcasting services in the United States partially avoid a free-rider problem by

A)using advertising to pay for the services.
B)converting the services from excludable to nonexcludable goods.
C)converting the services from private to public goods.
D)broadcasting unscrambled programs over the airwaves.
E)charging the government for their services.

Question 39

In order to determine the quantity of a government-provided service that should be produced, one should consider the

A)price minus the average cost of the service.
B)marginal cost and benefit of the service.
C)total cost and benefit of the service.
D)average cost and benefit of the service.
E)marginal benefit and average cost of the service.

Question 40

Contingent valuations give the most reliable estimate of the marginal benefits of a public good.

Question 41

The negative effect of cigarette smoking on a smoker is an externality.

Question 42

Exhibit 15-1
Refer to Exhibit 15-1. The graph illustrates the presence of

A)social efficiency.
B)a positive externality.
C)a negative externality.
D)private market disequilibrium.
E)government intervention.

Question 43

When a good is produced or consumed, the side effects on the people who are not directly involved in the market are called

A)transaction costs.
B)complements.
C)free riders.
D)externalities.
E)public goods.

Question 44

Marginal social cost minus marginal external cost equals

A)average cost.
B)marginal profit.
C)marginal private cost.
D)marginal private benefit.
E)marginal internal cost.

Question 45

Exhibit 15-1
Suppose that people value the continued presence of certain species of animals in rural areas, but home-building in those areas reduces the populations of the animals. Home-building creates

A)a positive externality.
B)a negative externality
C)a positive internality.
D)a negative internality.
E)a free-rider problem.

Question 46

A negative externality occurs when the purchase of a product

A)causes the seller of the product to lose profits.
B)increases market competition.
C)causes the government to lose tax revenues.
D)adversely affects the well-being of an individual outside of the market.
E)causes a lower market price.

Question 47

Suppose that the production of a good causes negative externalities. What will happen if the good is produced at the level at which the marginal private cost curve meets the demand curve?

A)The level of output will be socially desirable.
B)The level of output will result in a net social cost.
C)There will be a surplus.
D)The producers will incur losses.
E)There will be no buyer in the market.

Question 48

In a competitive market with a negative externality, firms produce an

A)amount and quality of output most desired by the market.
B)amount sometimes less and sometimes more than the efficient quantity.
C)efficient amount of output.
D)amount less than the efficient quantity.
E)amount more than the efficient quantity.

Question 49

An example of a positive externality is when

A)an automobile emits a pollutant.
B)your neighbor plants a beautiful garden that visible from your house.
C)a virus spreads throughout a child care center.
D)an electric utility burns coal and emits smoke.
E)any act has a negative effect, or cost, on the well-being of others.

Question 50

An externality is the effect that occurs when the production or consumption of a good directly affects a third party.

Question 51

An example of a good with a positive externality is

A)acid rain.
B)an oil spill.
C)air pollution.
D)a contagious disease.
E)research.

Question 52

Exhibit 15-1
Refer to Exhibit 15-1. The amount of externality is reflected in the difference between

A)P₁ and P₂.
B)P₁ and P₃.
C)P₂ and P₃.
D)$0 and P_1.
E)$0 and P₃.

Question 53

The marginal cost of production as viewed by society as a whole is called the marginal

A)social cost.
B)internal cost.
C)transactions cost.
D)private cost.
E)external cost.

Question 54

Exhibit 15-1
Refer to Exhibit 15-1. The price and quantity combination that represents social efficiency for this market is

A)P₁ and Q₁.
B)P₁ and Q₂.
C)P₂ and Q₁.
D)P₂ and Q₂.
E)P₃ and Q₁.

Question 55

Exhibit 15-2
Refer to Exhibit 15-2. The diagram illustrates an example of

A)a free-rider problem.
B)efficiency.
C)a tax.
D)a positive externality.
E)a negative externality.

Question 56

Exhibit 15-2
Refer to Exhibit 15-2. The deadweight loss due to externality is represented by the area

A)A + B.
B)C + D.
C)A + B + C + D.
D)E + F.
E)A + B + E + F.

Question 57

A situation in which the costs of producing or the benefits of consuming a good spill over onto those who are neither producing nor consuming the good is called a(n)

A)transaction cost.
B)property right.
C)free rider.
D)externality.
E)public good.

Question 58

What is involved in a cost-benefit analysis aimed at determining whether to increase the size of a city police force?

Question 59

When a negative externality occurs,

A)social costs are less than private costs.
B)social costs are greater private costs.
C)social costs are equal to private costs.
D)social costs are negative.
E)private costs are negative.

Question 60

Costs to society will equal costs to a private firm when

A)the firm misallocates resources in its market.
B)third parties bear some of the costs of producing the firm's product.
C)harmful externalities occur in the firm's market.
D)no externalities occur as the firm produces its product.
E)beneficial externalities occur in the firm's market.

Question 61

Education

A)is a public good.
B)provides a positive externality.
C)causes a free-rider problem.
D)exhibits nonrivalry in consumption.
E)exhibits nonexcludability in consumption.

Question 62

Suppose that the production of a good causes positive externalities. What will happen if the good is produced at the level at which the marginal private benefit curve meets the supply curve?

A)The level of production will be socially desirable.
B)The level of production will result in a net social cost.
C)The level of production will result in a net social benefit.
D)The producers will incur losses.
E)There will be no buyers in the market.

Question 63

Which of the following is least likely to involve a positive externality?

A)A can of soda
B)Research
C)A university
D)An interstate highway
E)A hospital

Question 64

The private market is said to underproduce a good that causes a negative externality.

Question 65

Marginal external benefit equals

A)marginal social benefit plus marginal private benefit.
B)marginal social benefit minus marginal private benefit.
C)marginal social benefit times marginal private benefit.
D)total social benefit minus total private benefit.
E)total social benefit plus total private benefit.

Question 66

A positive externality occurs when the marginal social benefits are less than the marginal private benefits.

Question 67

A negative externality occurs when marginal social costs exceed marginal private costs.

Question 68

Externalities have become international in recent years, paralleling the growth of international trade and finance.

Question 69

When a positive externality exists, the equilibrium quantity that emerges from a competitive market is

A)too high.
B)too low.
C)just right.
D)sometimes too high and sometimes too low.
E)zero.

Question 70

An example of an international negative externality is when

A)a Mexico City firm dumps hazardous chemicals into a local river.
B)a Midwest utility burns fuel that affects trees in upstate New York.
C)China uses copyright-protected, U.S.-made software.
D)a U.S.firm benefits from a Japanese firm's research.
E)a U.S.firm causes acid rain that falls in Canada.

Question 71

Marginal private cost refers to the marginal cost of production as viewed by society as a whole.

Question 72

The marginal benefit from consumption of a good as viewed by a private individual is called marginal

A)internal benefit.
B)external benefit.
C)social benefit.
D)external cost.
E)private benefit.

Question 73

Exhibit 15-2
In the case of negative externalities, a competitive market may not generate an efficient amount of production.

Question 74

If output is produced at the level at which the marginal social benefit curve and the supply curve intersect, then

A)the level of output is socially desirable.
B)the level of output results in a net social cost.
C)the level of output results in a net social benefit.
D)producers will incur losses.
E)there will be no buyers in the market.

Question 75

When the external benefits in a market are taken into account, the good's price is higher and the amount bought and sold is greater.

Question 76

Explain why, in the case of negative externalities, a competitive market produces a greater-than-economically-efficient quantity.

Question 77

A positive externality raises

A)marginal social benefits above marginal private benefits.
B)marginal benefits above marginal costs.
C)marginal private benefits above marginal social benefits.
D)marginal private costs above marginal social costs.
E)marginal social costs above marginal private costs.

Question 78

A negative global externality occurs when one country does research and others benefit.

Question 79

A positive externality occurs when one person's activity makes another person better off.

Question 80

Marginal social cost equals the sum of marginal costs of producers.