Deck 8: Public Choices and Public Goods

Question 1

When people determine the quantity of education they will undertake, they _______ the external benefits. As a result, if education were left to an unregulated market, people would undertake too _______ Education.

A) overvalue; little
B) ignore; much
C) ignore; little
D) overvalue; much

Answer 1

ignore; little

Question 2

Which of the following illustrates the concept of external benefit?

A) A gardener enjoys his flowers.
B) Neighbours enjoy a gardener's flowers.
C) Good weather increases the size of the wheat crop.
D) A new pesticide increases the size of the wheat crop.

Answer 2

Neighbours enjoy a gardener's flowers.

Question 3

Mike, Joe and Sam are roommates. They need lamps for their common living room. Lamps in their living room are a public good for these roommates. The marginal benefit that each individual receives from varying numbers of lamps in the living room is given in the table above. The marginal benefit for the second lamp to this group of roommates taken as a whole is

A) 17.
B) 10.
C) 9.
D) 13.

Answer 3

13.

Question 4

A free- rider problem occurs when the

A) good is rival.
B) good is nonexcludable.
C) good is excludable.
D) good is offered at no charge.

Question 5

A government subsidy for a good

A) has no effect on the quantity of the good produced.
B) is similar to a tax insofar as it decreases the production of the good being subsidised.
C) punishes those who consume or produce the subsidised good.
D) increases production of the subsidised goods.

Question 6

To find the economy's marginal benefit curve for a public good, you would

A) average the individual marginal benefit curves horizontally.
B) sum the individual marginal benefit curves horizontally.
C) sum the individual marginal benefit curves vertically.
D) average the individual marginal benefit curves vertically.

Question 7

Public goods create a free- rider problem because the quantity of the good that a person consumes
For that good.

A) increases as that person pays less
B) increases as that person pays more
C) decreases as that person pays more
D) does not depend on the amount that the person pays

Question 8

Most governments subsidise basic education because

A) of the existence of private schools.
B) the marginal social benefit of education is greater than the marginal private benefit.
C) there are external costs associated with well- educated citizens.
D) None of the above answers is correct.

Question 9

The table above shows the marginal costs and marginal benefits of university education. The marginal social benefit of university education at the efficient level of enrolment is

A) $14,000 per year.
B) $16,000 per year.
C) $12,000 per year.
D) $20,000 per year.

Question 10

If the marginal social benefit of a city's sewage system is less than the marginal social cost, then the city will achieve an efficient use of resources if it

A) increases the sewage charge that the residents pay.
B) increases the capacity of the sewage system.
C) does not change the capacity of the sewage system.
D) decreases the capacity of the sewage system.

Question 11

A good which is nonrival and nonexcludable is

A) a private good.
B) an externality.
C) a social good.
D) a public good.

Question 12

The principle of minimum differentiation suggests that competitors

A) try to decrease costs by minimising the differences in the types of resources used.
B) try to gain the largest market share by differentiating a popular product.
C) try to distinguish themselves by offering highly different products.
D) tend to make similar goods in order to appeal to the largest number of consumers.

Question 13

The marginal cost of educating a student is $30,000, and this cost is independent of the number of students. The figure above shows the marginal private benefit that a student receives from education. An independent government agency determines that the efficient number of students is 40,000. What subsidy per student must be given to universities to make the efficient number of students undertake education?

A) It depends on the demand.
B) $10,000
C) $30,000
D) $20,000

Question 14

In the above figure, to achieve efficiency the government should

A) offer a subsidy of $2 per unit.
B) impose a tax of $3 per unit.
C) offer a subsidy of $3 per unit.
D) impose a tax of $2 per unit.

Question 15

Nonrivalry is a feature of

A) all nonexcludable goods.
B) excludable goods.
C) goods but not services.
D) public goods.

Question 16

A good or service or a resource is nonexcludable if

A) its use by one person does not decrease the quantity available for someone else.
B) its use by one person decreases the quantity available for someone else.
C) it is possible to prevent someone from enjoying its benefits.
D) it is not possible to prevent someone from benefiting from it.

Question 17

Tom and Jerry are the only members of society. The table above shows their marginal benefits from defence satellites, a public good. What is the marginal benefit to society from the fourth satellite?

A) $18
B) $4
C) $36
D) $20

Question 18

Tom and Jerry are the only members of society. The table above shows their marginal benefits from defence satellites, a public good. If the marginal social cost of a satellite is $54, the quantity of satellites provided by a competitive market is

A) 0.
B) 1.
C) 2.
D) 3.

Question 19

The decision not to acquire information because the cost of acquiring the information exceeds the expected benefit from the information is known as

A) public choice theory.
B) the principle of minimum differentiation.
C) inefficient provision.
D) rational ignorance.

Question 20

The table above shows the marginal costs and marginal benefits of university education. If the market for university education is perfectly competitive and unregulated, at the equilibrium quantity, the marginal external benefit is

A) zero.
B) $4,000.
C) $8,000.
D) $5,000.

Question 21

Vaccinations provide both private benefits and external benefits. The table above gives information on the marginal private benefit and marginal external benefit associated with vaccination against varicella (chicken pox). If the marginal cost of a varicella vaccination is $10, to achieve an efficient quantity of vaccinations the government could provide a subsidy of

A) $4 per vaccination.
B) $3 per vaccination.
C) $1 per vaccination.
D) $2 per vaccination

Question 22

The free- rider problem is the inability of private markets to achieve the efficient level of production of

A) private goods.
B) rival goods.
C) excludable goods.
D) public goods.

Question 23

Rational ignorance suggests that voters will

A) pursue information on all issues before voting.
B) be ignorant about issues that are of no special interest to them.
C) be ignorant about all issues.
D) avoid voting if they have no information.

Question 24

A public choice is

A) a decision that affects an entire society.
B) a decision made in public.
C) a decision that affects no one.
D) a decision that affects one person.

Question 25

The principle of minimum differentiation reflects the

A) attempt to minimise the free- rider problem.
B) tendency for firms to produce at minimum marginal cost in order to compete with one another.
C) concept of minimising the difference between total benefit and total cost to produce efficiently.
D) tendency for political parties to make themselves identical to appeal to the median voter.

Question 26

A free- rider problem exists if

A) a firm can obtain technology at a fair price.
B) those consuming the good pay nothing for it.
C) two consumers can jointly consume a good, which lowers the price per person.
D) those consuming the good pay more than the cost of providing the good so that the producer's profits increase ("free ride") as a result of the overpayment.

Question 27

Public goods are

A) underprovided by the private market because the marginal cost of production is too high.
B) overprovided by the private market because the marginal benefits of consumption are too high.
C) underprovided by the private market because people's willingness to pay for the good is less than the marginal social benefit of the good.
D) underprovided by the private market because the marginal benefits of consumption are too low.

Question 28

Which of the following is the BEST example of a public good?

A) A stop sign
B) A parking space
C) A car
D) A toll road

Question 29

Private goods are those for which consumption is

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

Question 30

A movie shown on a pay- per- view cable television channel is an example of

A) an excludable and nonrival good.
B) an excludable and rival good.
C) a nonexcludable and rival good.
D) a nonexcludable and nonrival good.

Question 31

The figure above shows the marginal social costs (MSC), marginal private benefits (MB), and marginal social benefits (MSB) of university education in Inland. Suppose Inland's government is considering subsidising private universities to ensure the efficient level of enrolment. What should be the amount of the subsidy (if any)?

A) $1,000 per student per year.
B) $4,000 per student per year.
C) The government should not subsidise private universities.
D) $2,000 per student per year.

Question 32

Food is an example of a _______ good.

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

Question 33

If a public good was left to be provided by the private sector,

A) less than the efficient quantity would be produced.
B) the good would be provided at a very low price.
C) more than the efficient quantity would be produced.
D) the efficient quantity would be produced.

Question 34

National defence is an example of a

A) private good.
B) natural monopoly good.
C) public good.
D) common resource.

Question 35

In the above figure, in order to promote an efficient allocation of resources, the government could grant a subsidy equal to

A) zero.
B) $10 per unit.
C) $5 per unit.
D) $15 per unit.

Question 36

Which of the following is the BEST example of a public good?

A) Fish in the ocean
B) A can of Mountain Dew
C) Cable television
D) National defence

Question 37

In the above figure, if a subsidy is granted to producers that generates an efficient allocation of resources, then consumers will pay a price of

A) $10 per unit.
B) $20 per unit.
C) $15 per unit.
D) $5 per unit.

Question 38

A free- rider problem is created by

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

Question 39

If the consumption of a good decreases the quantity available for another person, the good is

A) excludable.
B) free.
C) rival.
D) pure.

Question 40

Tom and Jerry are the only members of society. The table above shows their marginal benefits from defence satellites, a public good. If the marginal social cost of a satellite is $36, the efficient quantity of satellites is

A) 1.
B) 2.
C) 3.
D) 4.

Question 41

If it is impossible to prevent someone from benefiting from a good regardless of whether or not the person paid for it, then the good is

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

Question 42

If production of a good produces an external benefit, in order for the marginal social cost to equal the marginal social benefit,

A) the good could be subsidised.
B) the good should be taxed.
C) permits should be required to purchase the good.
D) the government needs to take no action.

Question 43

The figure above shows the supply curve (S) and the demand curve (D) for university education. The external benefit from university education is $6,000 per student per year and is constant.
In the figure above, with no government involvement and if the universities are competitive, what is the deadweight loss?

A) $6 billion per year
B) $12 billion per year
C) $4 billion per year
D) Zero

Question 44

A good or service or a resource is nonrival if

A) it is possible to prevent someone from enjoying its benefits.
B) its use by one person decreases the quantity available for someone else.
C) it is not possible to prevent someone from enjoying its benefits.
D) its use by one person does not decrease the quantity available for someone else.

Question 45

The above figure shows the marginal benefit and marginal cost curves for a public good. The efficient quantity is

A) A.
B) B.
C) C.
D) zero units supplied.

Question 46

If the consumption of a good or service by one person does not decrease the quantity available for another person, the good or service is

A) pure.
B) nonrival.
C) nonexcludable.
D) free.

Question 47

Broomfield City Council is deciding how many police officers the city needs. Broomfield's population is 10,000 people. The marginal cost of a police officer is $60,000 per year. The marginal benefit schedule of an average city resident from police protection is shown in the table above. Police protection is a public good. The marginal benefit for all of Broomfield from hiring the 4th police officer is

A) $8,000.
B) $5.60.
C) $6.00.
D) $56,000.

Question 48

Which of the following is the BEST example of a private good?

A) National defence
B) Fish in the ocean
C) Cable television
D) A can of Mountain Dew

Question 49

Rational ignorance says that voters will

A) not vote on issues that they do not understand.
B) gather information on issues that are not important.
C) understand the technology before voting on defence.
D) vote on issues without having complete information.

Question 50

When the consumption of a good creates an external benefit,

A) the quantity produced in an unregulated, competitive market is greater than the efficient quantity.
B) the marginal social benefit curve lies above the marginal private benefit curve.
C) the marginal social cost curve lies below the marginal private cost curve.
D) None of the above answers is correct.

Question 51

Which of the following is the BEST example of a good that is nonrival and excludable?

A) Cable television
B) Fish in the ocean
C) A can of Mountain Dew
D) National defence

Question 52

What are the two features of a public good?

A) Rival and nonexcludable
B) Nonrival and excludable
C) Rival and excludable
D) Nonrival and nonexcludable

Question 53

Which of the following does NOT contain an externality?

A) I sell you an ice cream and you drip it all over the person sitting next to you.
B) I sell you an ice cream and it gives you a headache.
C) I give you an ice cream and you share it with a friend.
D) I sell you an ice cream and you share it with your friend.

Question 54

The economy's marginal benefit curve for a public good is found by _______ for all individuals.

A) vertically summing the marginal benefit curves
B) horizontally summing the total benefit curves
C) vertically summing the total benefit curves
D) horizontally summing the marginal benefit curves

Question 55

Nonexcludability is a feature of

A) goods but not services.
B) all nonrival goods.
C) public goods.
D) goods with an external cost.

Question 56

A common resource is _______ and _______.

A) nonrival; excludable
B) rival; nonexcludable
C) nonrival; nonexcludable
D) rival; excludable

Question 57

Suppose that recycling rubber for sneakers creates an external benefit of $2.00 per tonne of rubber. There are no external costs. The efficient amount of rubber will be recycled when the government creates a

A) subsidy of $2.00 per tonne of rubber.
B) tax of more than $2.00 per tonne of rubber.
C) tax of $2.00 per tonne of rubber.
D) subsidy of more than $2.00 per tonne of rubber.

Question 58

Free riding

A) is possible if the consumption of a good is characterised by excludability.
B) occurs when consumers pay too much for services provided by the government.
C) is characteristic of private goods.
D) is possible if the consumption of a good is characterised by nonexcludability.

Question 59

Which of the following is the BEST example of a private good?

A) Air traffic control
B) A house
C) A bridge during rush hour
D) Fish in the ocean

Question 60

The table above shows the marginal costs and marginal benefits of university education. The marginal private benefit of university education at the efficient level of enrolment is

A) $14,000 per year.
B) $12,000 per year.
C) $16,000 per year.
D) $20,000 per year.

Question 61

If the government regulates the market in the above figure in a way to achieve efficiency, then _______ Vaccinations will be produced and consumed.

A) 50,000
B) 0
C) 30,000
D) None of the above answers is correct.

Question 62

Suppose your neighbour has a beautiful garden. The benefit that she enjoys from her garden is called _______ and the benefit the rest of the neighbourhood enjoys is called _______.

A) marginal external benefit; marginal social benefit
B) private cost; external cost
C) marginal social benefit; marginal external benefit
D) marginal private benefit; marginal external benefit

Question 63

Consider a market in which there is an external benefit. A private subsidy paid to producers can be used to arrive at the efficient market equilibrium because the subsidy will

A) decrease demand.
B) decrease the supply of the good.
C) increase the price demanders pay.
D) increase the quantity produced.

Question 64

In the above figure, if a subsidy is granted that generates an efficient allocation of resources, then the output level will be

A) zero.
B) 250 units per week.
C) 150 units per week.
D) 50 units per week.

Question 65

Governments exist to

A) provide non- market mechanisms for allocating scarce resources.
B) implement arrangements that redistribute wealth and income.
C) maintain property rights.
D) All of the above

Question 66

In the above figure, the competitive unregulated equilibrium is producing and consuming _______ Vaccinations per year at a price of _______.

A) 30,000; $40
B) 30,000; $20
C) 50,000; $30
D) 30,000; $30

Question 67

If the marginal social benefit of a good equals the marginal private benefit of the good, then the marginal external benefit of the good

A) equals the marginal social benefit.
B) is zero.
C) equals the marginal social cost.
D) equals the marginal private cost.

Question 68

Mike, Joe, and Sam are roommates. They need lamps for their common living room. Lamps in their living room are a public good for these roommates. The marginal benefit that each individual receives from varying numbers of lamps in the living room is given in the table above. If the marginal cost of a lamp is 13, what is the efficient number of lamps for the roommates to purchase?

A) 0
B) 1
C) 2
D) 5

Question 69

In which of the following markets are external benefits most likely to exist?

A) In the market for cigarettes
B) In the market for flu shots
C) In the market for ball pens
D) In the market for gasoline

Question 70

Tom and Jerry are the only members of society. The table above shows their marginal benefits from defence satellites, a public good. What is the marginal benefit to society from the third satellite?

A) $30
B) $6
C) $54
D) $27

Question 71

An example of an activity that generates an external cost is

A) national defence services.
B) planting flowers along an interstate highway.
C) eating an apple.
D) dumping soapsuds into a trout stream.

Question 72

The figure above illustrates the marginal benefit and marginal cost of different quantities of national defence. What is the political equilibrium if voters are well- informed?

A) Between 0 and 3 units
B) 3 units
C) 0 units
D) 5 units

Question 73

An example of an externality occurs when a chemical factory

A) overworks its employees.
B) produces fertilisers that kill plants rather than feed them.
C) produces fertilisers that do not help plants grow.
D) is producing ethanol and dumps waste in a river upstream from a popular fishing spot.

Question 74

When government action leads to inefficiency it is known as

A) government failure.
B) politics.
C) government as usual.
D) lack of government trust.

Question 75

Suppose two individuals, Pooh and Piglet, desire protection (provided by Tigger) for their community, The Hundred Acre Wood, from heffalumps. Protection is a public good. The marginal cost of protection as well as Piglet's and Pooh's marginal benefits from protection are in the table above. What is the quantity of protection that achieves the maximum net benefit?

A) 1 hour per day
B) 2 hours per day
C) 3 hours per day
D) 4 hours per day

Question 76

The external benefit of a good

A) equals its producer surplus.
B) equals its total surplus.
C) is a benefit from the good falling on people who are not the consumers of the good.
D) equals its consumer surplus.

Question 77

A public good is _______ and _______.

A) nonrival; excludable
B) rival; nonexcludable
C) nonrival; nonexcludable
D) rival; excludable

Question 78

Rational ignorance about the efficient quantity of a public good can result in

A) excludable goods.
B) the vertical summation of individual's marginal benefit curves.
C) the principle of minimum differentiation.
D) bureaucratic overprovision of a good.

Question 79

The table above shows the marginal costs and marginal benefits of university education. With public provision of the efficient amount of university education, the cost paid by taxpayers is

A) zero.
B) $8,000 per student.
C) $12,000 per student.
D) $4,000 per student.

Question 80

Which of the following is the BEST example of a public good?

A) The Internet
B) A house
C) New Year's Eve fireworks
D) Fish in the ocean