Deck 16: Market Failures and Government Intervention

Question 1

When prices are determined in a free-market system

A)changes in the economy can be foreseen by officials.
B)resources are allocated without conscious central coordination.
C)firms respond to changes in the economy mainly by altering the wage rate.
D)demand shifts,caused by price changes,coordinate all necessary changes in the economy.
E)supply shifts,caused by price changes,coordinate all necessary changes in the economy.

Answer 1

resources are allocated without conscious central coordination.

Question 2

Economists use the term "market failure" to refer to those free-market situations where

A)income is not distributed equitably.
B)allocatively efficient outcomes are not achieved.
C)externalities are present in the economy.
D)the economy is not in equilibrium.
E)government has intervened in the economy.

Answer 2

allocatively efficient outcomes are not achieved.

Question 3

In a competitive market economy with no externalities,allocative efficiency would exist if

A)prices equal total cost in all markets.
B)prices equal marginal revenue in all markets.
C)prices equal marginal costs in all markets.
D)prices equal average variable cost in all markets.
E)stringent government intervention exists.

Answer 3

prices equal marginal costs in all markets.

Question 4

The "informal defence" of free markets includes the argument that markets

A)provide automatic coordination of the actions of decentralized decision makers.
B)achieve the maximum feasible rate of economic growth.
C)lead to allocative efficiency.
D)permit a centralization of economic power.
E)lead to productive efficiency.

Question 5

Which of the following roles of the government is most fundamental to a society's ability to function safely and carry on normal economic and social life?

A)provider of health care
B)provider of education
C)provider of a justice system
D)holder of a monopoly of violence
E)regulator of free markets

Question 6

Which of the following statements about market economies is true?

A)Most present-day economists advocate extensive government intervention in most parts of market economies.
B)Externalities make free-market outcomes socially efficient.
C)An important characteristic of the market system is its ability to set in motion forces that tend to correct disequilibrium.
D)Market failure means that a market economy is incapable of satisfying human wants.
E)Pure market economies provide the best social outcome.

Question 7

Economists describe prices as "signals" in a market economy because

A)prices are the only mechanism through which supply and demand will balance.
B)changes in these signals bring about changes in economic behaviour.
C)changes in these signals bring about changes in market structure.
D)they tell consumers how to act to keep the market system functioning well.
E)they tell government agents how to act to keep the market system functioning well.

Question 8

In a free-market economy that is continually adjusting toward equilibrium,a primary force driving this adjustment is

A)opportunity costs.
B)diminishing returns.
C)the pursuit of allocative efficiency.
D)the scarcity of resources.
E)the pursuit of profits.

Question 9

In a free-market economy,

A)temporary shortages and surpluses become permanent.
B)economic power is centralized.
C)market failures are automatically corrected.
D)there is no role for government intervention.
E)the existence of profits and losses provide signals to other economic agents.

Question 10

In a free-market system,a disequilibrium in one market

A)provides evidence that the market system does not work.
B)shows that government intervention is always necessary to restore the market to equilibrium.
C)suggests that no seller or buyer has an incentive to alter his or her behaviour.
D)produces forces that eventually bring that market back to equilibrium.
E)means that the economy will fall into chaos.

Question 11

Which of the following statements about free-market economies is false?

A)An efficiently functioning market economy will correct temporary shortages and surpluses.
B)Markets tend to be impersonal and to decentralize economic power.
C)The government has a role to play in correcting market failures.
D)In a free-market economy there is no role for government intervention.
E)The existence of profits and losses provides signals to other economic agents.

Question 12

The "formal defence" of free markets includes the argument that competitive markets

A)lead to allocative efficiency.
B)provide automatic coordination of the actions of decentralized decision makers.
C)provide a stimulus to innovation and economic growth because of the pursuit of profits.
D)permit a decentralization of economic power.
E)lead to political freedom.

Question 13

The essential coordinating mechanism of a free-market economy is

A)allocative efficiency.
B)productive efficiency.
C)profit maximization.
D)the price system.
E)opportunity cost.

Question 14

Economic losses in an industry are a signal that

A)too few resources are allocated to the industry.
B)all of the firms should leave the industry.
C)a government subsidy is necessary.
D)will lead resources to leave the industry (until the losses disappear).
E)the economy is in a recession.

Question 15

One part of the "informal defence" of the market system is the argument,made forcefully by the late Milton Friedman,that free markets provide for the

A)greatest equality in income distribution.
B)decentralization of economic power.
C)greatest security for members of society.
D)government with the highest tax revenues.
E)greatest scope for international trade.

Question 16

The "informal defence" of free markets includes the argument that competitive markets
1)lead to allocative efficiency;
2)provide automatic coordination of the actions of decentralized decision makers;
3)provide a stimulus to innovation and economic growth because of the pursuit of profits.

A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question 17

Profit-motivated product and process innovation is primarily a characteristic of ________ systems.

A)market
B)centrally planned
C)oligopolistic
D)socialist
E)monopolistic

Question 18

If typical firms in a competitive industry are earning economic profits,the industry

A)is in a long-run equilibrium.
B)has too many resources allocated to it.
C)must be experiencing an increase in monopoly power.
D)can be expected to experience the entry of new firms.
E)is allocatively efficient.

Question 19

The concept of "institution building" is becoming more prominent.Which of the following best describes the aim of institution building?

A)In Canada,for example,the strengthening of existing financial institutions is key to the country's economic well-being.
B)Canada's aid to developing countries is being focused on creating the economic institutions,such as a central bank,that are key to a country's economic growth.
C)The rich,developed countries focus their assistance to developing countries on creating stable political infrastructures.
D)The rich,developed countries focus on the success of institutions that are global in nature,such as the United Nations,The World Bank and the International Monetary Fund.

Question 20

Which of the following statements about the price system is most accurate? The price system

A)is automatic and functions perfectly in reallocating economic resources.
B)is automatic,although it does not function perfectly.
C)depends on planned coordination between firms and governments.
D)operates only in a laissez-faire economy.
E)is the only feasible method of allocating resources.

Question 21

Consider an industry producing good X.The quantity of good X produced in a competitive free market will be greater than the socially optimal level if

A)the production of good X generates a positive externality.
B)the consumption of good X generates a positive externality.
C)the production of good X generates a negative externality.
D)the government has imposed a tax on the production of good X.
E)good X is a public good.

Question 22

For a production process that involves a positive externality,it is true that

A)a per unit tax could be imposed on the producer to achieve the socially optimal level of production.
B)marginal social benefit is less than marginal private benefit.
C)marginal social cost is more than marginal private cost.
D)without government intervention the market will produce too much of this good.
E)a subsidy to producers could increase production to the socially optimal level.

Question 23

The problem with externalities is essentially one of

A)a discrepancy between private and social costs.
B)asymmetric information.
C)the inability of a firm in an industry characterized by increasing returns to scale to make positive profits if it sets price equal to marginal cost.
D)a failure of the market to generate socially valued outcomes.
E)the failure of the market to solve social problems.

Question 24

A homeowner decides to buy three large dogs that sleep outdoors and howl at the moon.An externality associated with this decision is

A)the increased work for the homeowner in yard cleanup.
B)the cost of purchasing the dogs.
C)the neighbours' lost sleep.
D)the homeowner's lost sleep.
E)the veterinary costs of keeping the dogs healthy.

Question 25

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₀ and MB₁,respectively,then there exists

A)an external benefit.
B)an external cost.
C)an external benefit and an external cost.
D)a social cost that exceeds the private cost.
E)no external benefits or costs.

Question 26

The existence of imperfectly competitive firms implies a market failure because

A)they do not produce a productively efficient level of output.
B)their market power allows them to deceive consumers.
C)they lead to a socially undesirable distribution of income.
D)there is no way to prevent these firms from abusing their market power.
E)those firms will maximize profits by setting price above marginal cost.

Question 27

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₁ and MB₀,respectively,then the competitive equilibrium quantity is

A)too low for allocative efficiency.
B)too high for allocative efficiency.
C)consistent with allocative efficiency.
D)not enough information to determine allocative efficiency.

Question 28

If a firm produces a good and its consumption generates external benefits,then at the competitive market equilibrium

A)the government could subsidize the production of this good to improve efficiency.
B)the marginal private benefit is greater than the marginal cost of producing the last unit.
C)the output would be more than the socially optimal amount.
D)the firm will not produce an additional amount if it can internalize the external benefits.
E)the marginal social benefit is less than the marginal cost of producing the last unit.

Question 29

A free-market economy with perfect allocative efficiency does not exist in reality because

A)government intervention in the economy prevents the economic forces that would eventually bring the market to an allocatively efficient outcome.
B)the assumption of profit-maximization is not a realistic assumption about the behaviour of firms.
C)the assumption of utility maximization is not a realistic assumption about the behaviour of consumers.
D)firms in many industries have some degree of market power and face negatively sloped demand curves,and produce a level of output where P > MC.
E)the decentralization of economic power in a free-market economy does not allow for allocative efficiency.

Question 30

Government intervention in a particular industry is unnecessary if each of the industry's firms is operating where

A)there are no positive externalities.
B)there are no negative externalities.
C)price is equal to private marginal cost.
D)marginal social benefit is equal to marginal social cost.
E)the demand curve is perfectly elastic.

Question 31

A plausible example of market failure due to an externality is

A)the cost of building new highways outside of major cities.
B)the despoiling of rivers and lakes by nitrogen run-off from agricultural fertilizers.
C)the high salaries enjoyed by professional athletes.
D)the line-ups at the theatre when a good movie is playing.
E)a farmer with an apple orchard who also keeps bees.

Question 32

FIGURE 16-1
Refer to Figure 16-1.Suppose the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₀ and MB₀,respectively,then there exists

A)a negative external benefit.
B)a negative external cost.
C)a positive external benefit.
D)a positive external cost.
E)no externality whatsoever.

Question 33

Government intervention in an effort to promote allocative efficiency in all industries would likely impose a cost in terms of economic growth.One explanation for this is that

A)some policies to promote allocative efficiency will lead to increased income inequality.
B)some policies to promote allocative efficiency will lead to decreased income inequality.
C)correcting externalities inevitably reduces the economy's growth rate.
D)firms in perfectly competitive industries that are already allocatively efficient would also be affected by the intervention and become inefficient.
E)much of the innovation and productivity growth that leads to economic growth comes from oligopolistic firms.

Question 34

What is meant by the term "market failure"?

A)that a small group in society is affected
B)that allocative efficiency has not been achieved
C)that the market economy is a failure
D)that one or more markets are not in equilibrium
E)that the free market has failed to achieve desirable social goals

Question 35

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₀ and MB₀,respectively,then

A)the competitive price is too high.
B)the competitive price is too low.
C)the competitive quantity is too high.
D)the competitive quantity is too low.
E)the competitive price and quantity are consistent with allocative efficiency.

Question 36

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₂ and MB₀,respectively,then the competitive equilibrium quantity is

A)too low for allocative efficiency.
B)too high for allocative efficiency.
C)consistent with allocative efficiency.
D)not enough information to determine allocative efficiency.

Question 37

Consider an industry producing good X.The quantity of good X produced in a competitive free market will be less than the socially optimal level if

A)the consumption of good X generates a negative externality.
B)the consumption of good X generates a positive externality.
C)the production of good X generates a negative externality.
D)the government is subsidizing the production of good X.
E)good X has negative third party effects associated with its consumption.

Question 38

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₁ and MB₀,respectively,then there exists

A)a negative external benefit.
B)a negative external cost.
C)a positive external benefit.
D)a positive external cost.
E)no externalities at all.

Question 39

Which of the following phenomena is NOT an example of market failure?

A)moral hazard
B)a positive externality
C)asymmetric information
D)diminishing marginal returns
E)public goods

Question 40

FIGURE 16-1
Refer to Figure 16-1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC₀ and MB₁,respectively,then the competitive equilibrium quantity is

A)too low for allocative efficiency.
B)too high for allocative efficiency.
C)consistent with allocative efficiency.
D)not enough information to determine allocative efficiency.

Question 41

Why might it be economically efficient to offer access to an uncongested art gallery or museum at a price of zero?

A)because they are non-rivalrous and non-excludable and therefore should be provided at a price of zero
B)because the marginal benefit received by the visitor is zero,and marginal benefits and marginal cost should be equal
C)because the marginal cost of providing access to one more visitor is zero,while the visitor has a positive marginal benefit
D)because it is good for society if more people visit art galleries and museums
E)because they are public goods,which would not be provided by the free market

Question 42

The diagram below shows demand and supply curves for some perfectly competitive market. FIGURE 16-2
Refer to Figure 16-2.Suppose that the marginal benefit curve (MB)includes all social benefits and that there is a negative externality in production.In this case,________ for allocative efficiency.

A)P₁ and Q₁ are appropriate
B)the price P₁ is appropriate but the quantity Q₁ is too low
C)the price P₁ is appropriate but the quantity Q₁ is too high
D)the price P₁ is too low and the quantity Q₁ is too high
E)the price P₁ is too high and the quantity Q₁ is too low

Question 43

The diagram below shows demand and supply curves for some perfectly competitive market. FIGURE 16-2
Refer to Figure 16-2.Suppose that the marginal benefit curve (MB)includes all social benefits and that there are no externalities in production.In this case,________ for allocative efficiency.

A)P₁ and Q₁ are appropriate
B)the price P₁ is appropriate but the quantity Q₁ is too low
C)the price P₁ is appropriate but the quantity Q₁ is too high
D)the price P₁ is too low but the quantity Q₁ is appropriate
E)the price P₁ is too high but the quantity Q₁ is appropriate

Question 44

The diagram below shows the supply and demand diagrams for the competitive market for honey in one region.MC₀ represents private marginal cost and MB₀ represents private marginal benefit. FIGURE 16-3
Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.We can say that there is a ________ externality in the production of honey.The curve ________ represents the ________ marginal benefit of honey.

A)positive; MB₁; social
B)negative; MB₁; private
C)negative; MB₂; social
D)positive; MB₂; social
E)positive; MB₂; private

Question 45

The diagram below shows the supply and demand diagrams for the competitive market for honey in one region.MC₀ represents private marginal cost and MB₀ represents private marginal benefit. FIGURE 16-3
Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.If the government subsidizes the beekeepers so as to fully internalize the externality,the equilibrium price of honey would be ________ and the allocatively efficient output would be ________.

A)3; 80
B)5; 100
C)7; 100
D)9; 60
E)11; 80

Question 46

The diagram below shows the supply and demand diagrams for the competitive market for honey in one region.MC₀ represents private marginal cost and MB₀ represents private marginal benefit. FIGURE 16-3
Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.In the absence of any government intervention,the equilibrium price and quantity in the honey market are

A)$5 and 60 kg.
B)$5 and 100 kg.
C)$7 and 80 kg.
D)$9 and 60 kg.
E)$11 and 80 kg.

Question 47

An example of a rivalrous good is

A)toxic emissions from a factory smokestack.
B)an empty toll highway.
C)an uncrowded beach.
D)a visit to the dentist.
E)the weather forecast.

Question 48

Economists consider a product such as a university education to be ________,whereas a product such as your local library is generally considered to be ________.

A)non-rivalrous and non-excludable; rivalrous and non-excludable
B)rivalrous and non-excludable; rivalrous and excludable
C)rivalrous and excludable; non-rivalrous and excludable
D)rivalrous and excludable; rivalrous and non-excludable
E)non-rivalrous and excludable; non-rivalrous and excludable

Question 49

Consider a non-rivalrous good,like national defence,provided by the government.At the socially optimal level of provision of this good,the marginal

A)cost of production of this good is zero.
B)cost of production of the last unit of the good is equal to the consumers' marginal willingness to pay.
C)sacrifice society needs to make to supply the last unit of the good is more than each consumer's marginal willingness to pay.
D)cost of production of the last unit of the good is more than all consumers' combined marginal willingness to pay.
E)cost of production of the last unit of the good is equal to all consumers' combined marginal willingness to pay.

Question 50

If a homeowner uses wood to heat his house,

A)he may generate an external cost if the smoke bothers his neighbours.
B)the price of the wood represents an external cost to the homeowner.
C)the price of the wood represents an external cost to the homeowner,unless he harvests the wood himself.
D)he may generate an external benefit if the smoke bothers his neighbours.
E)he may generate an external benefit if the price of heating oil goes down in his region.

Question 51

A flu vaccine has an associated ________ externality.In the absence of government intervention,the quantity of flu vaccines purchased will be ________ the socially optimal quantity.

A)positive; the same as
B)negative; the same as
C)negative; less than
D)positive; less than
E)positive; more than

Question 52

The price charged for access to an uncongested,excludable,non-rivalrous good should be ________ because ________.

A)positive; consumers receive a positive marginal benefit from consuming the good
B)positive; marginal cost and marginal benefit for this good are both positive
C)positive; more than one person can consume this good at the same time
D)zero; it is inefficient to exclude people from consuming this good once it has been supplied
E)zero; the marginal benefit of the last unit consumed is zero

Question 53

Consider a product (say,tulip bulbs)that generates positive externalities when it is consumed (other people enjoy looking at them).In this case,

A)the government could tax the production of this good to improve efficiency.
B)at market equilibrium,the marginal social benefit is less than the marginal cost of producing the last unit.
C)at the market equilibrium,the output would be greater than the socially optimal amount.
D)too few tulips will be produced and consumed unless external benefits are internalized.
E)at the market equilibrium,the price is too high to be allocatively efficient.

Question 54

The diagram below shows demand and supply curves for some perfectly competitive market. FIGURE 16-2
Refer to Figure 16-2.Suppose that the marginal benefit curve (MB)includes all social benefits and that there is a positive externality in production.In this case,________ for allocative efficiency.

A)P₁ and Q₁ are appropriate
B)the price P₁ is appropriate but the quantity Q₁ is too low
C)the price P₁ is appropriate but the quantity Q₁ is too high
D)the price P₁ is too low and the quantity Q₁ is too high
E)the price P₁ is too high and the quantity Q₁ is too low

Question 55

Which of the following best describes the reason for over fishing in Canadian offshore fisheries?

A)Fishing has depleted fish stocks leading to smaller catches.
B)The private marginal cost incurred by current fishermen is less than the social marginal cost.
C)The private marginal cost incurred by future generations of fishermen is greater than the private marginal cost incurred by current fishermen.
D)The Canadian government encourages foreign fishing within the Canadian offshore boundary.
E)None of the above can explain overfishing.

Question 56

Consider an ordinary rivalrous good,provided in a competitive market.At the socially optimal level of provision of this good,the marginal

A)cost of production of this good is zero.
B)cost of production of the last unit of the good is equal to the consumers' marginal willingness to pay.
C)sacrifice society needs to make to supply the last unit of the good is more than each consumer's marginal willingness to pay.
D)cost of production of the last unit of the good is more than all consumers' combined marginal willingness to pay.
E)cost of production of the last unit of the good is equal to all consumers' combined marginal willingness to pay.

Question 57

Which of the following best explains why it is sometimes efficient to charge a positive price for the use of some products such as museums,beaches,and roads?

A)Since these products are non-excludable,it is sometimes efficient to charge a positive price.
B)Once these products become congested they become rivalrous,marginal cost is positive,and a positive price is then efficient.
C)Each person consuming the product has a positive marginal benefit and should therefore pay a positive price.
D)Since these products are excludable,marginal cost is always positive,and a positive price is appropriate.
E)Since these products are excludable and non-rivalrous,it is always efficient to charge a positive price.

Question 58

The diagram below shows the supply and demand diagrams for the competitive market for honey in one region.MC₀ represents private marginal cost and MB₀ represents private marginal benefit. FIGURE 16-3
Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.If the external marginal benefit is $4 per unit of honey,then what is the allocatively efficient output?

A)40 kg
B)60 kg
C)80 kg
D)100 kg
E)120 kg

Question 59

An example of a common-property resource is

A)a congested toll highway.
B)a national park with an entrance fee.
C)privately owned ranch land.
D)an unregulated sport-fishing river in BC.
E)privately owned cattle grazing land in Alberta.

Question 60

The diagram below shows the supply and demand diagrams for the competitive market for honey in one region.MC₀ represents private marginal cost and MB₀ represents private marginal benefit. FIGURE 16-3
Refer to Figure 16-3.Assume there are two types of firms in this region - beekeepers that produce honey and orchard keepers that produce peaches.The bees provide a benefit to the orchard keepers by pollinating their peach trees.If MB₂ represents the social marginal benefit of honey,the external benefit associated with producing one unit of honey is

A)$1.
B)$2.
C)$3.
D)$4.
E)$5.

Question 61

Under what circumstances would it be efficient to charge a positive price for drivers to cross the Champlain Bridge in Montreal or the Lion's Gate Bridge in Vancouver?

A)when it is possible to exclude drivers from the bridge
B)when it is not possible to exclude drivers from the bridge
C)when the sum of marginal benefits to all drivers is positive
D)when the marginal private benefit to the last driver is greater than the marginal private cost to that driver
E)when congestion on the bridge means that the marginal cost of providing access to one more driver is positive

Question 62

Common-property fishing grounds are

A)often underexploited because non-excludability means there is little investment in the resource.
B)always efficiently exploited because fishermen now understand the dangers of over-fishing.
C)often overexploited because individual fishermen have no incentive to leave fish for the "next" fisherman.
D)often overexploited because fishing grounds are rivalrous and excludable.
E)often overexploited because fishermen are concerned with preserving fish stocks for future fishermen.

Question 63

Consider a remote village with a limited,freely available water supply and no government intervention in the allocation of water.Economic theory predicts that the water will be

A)allocated efficiently because users will tend to use the water until marginal cost and marginal benefit are both equal to zero.
B)overexploited because users will tend to use the water until the marginal cost of providing the water is zero.
C)allocated efficiently because users will tend to use the water until the supply and demand are in equilibrium.
D)overexploited because users will tend to use the water until their marginal benefit is zero.
E)allocated efficiently because users will tend to use the water as though it were a public good.

Question 64

An efficient amount of a public good is unlikely to be produced in a free market because

A)there is no way to prevent a person who is not willing to pay for the good from receiving benefits from the good.
B)of the high cost of producing the public good.
C)social benefits exceed social costs.
D)of the existence of moral hazard.
E)of the existence of adverse selection.

Question 65

An efficient level of provision of a public good is achieved when

A)the cost of providing an extra unit of the good is equal to the valuation of each consumer of the extra unit.
B)the cost of providing an extra unit of the good is equal to the sum of the valuations of all consumers for that unit.
C)the cost of providing an extra unit of the good is equal to the price of the good.
D)the valuation of each consumer for the last unit of the good produced is zero.
E)voters are satisfied that an adequate amount of the good is being produced.

Question 66

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

A)a municipal swimming pool
B)a seat on an airplane flight
C)light from a lighthouse
D)a school bus
E)a publicly owned subway system

Question 67

Which of the following statements about public goods is true?

A)They cannot be publicly provided.
B)They are unlikely to be provided by private,profit-seeking firms.
C)They are essentially negative externalities.
D)They respond to market signals.
E)The firms producing them must be listed on a public stock exchange.

Question 68

An example of a public good is

A)apples on a tree in a public park.
B)insurance.
C)street lighting.
D)air travel.
E)municipal transit service.

Question 69

If you consume some good,and by doing so you diminish other people's possible use of that good,we say that the good is

A)rivalrous.
B)excludable.
C)a common resource.
D)not productively efficient.
E)a public good.

Question 70

One reason that national defence is a classic example of a public good is that

A)all citizens want national defence.
B)society deems it to be too important to be provided by the private sector.
C)the benefits that accrue to one person do not diminish the benefits available to others.
D)military technology is too expensive for private firms to provide.
E)it would be immoral for private firms to provide this essential commodity.

Question 71

One reason that national defence is a classic example of a public good is that

A)all citizens want national defence.
B)society deems it to be too important to be provided by the private sector.
C)the benefits of national defence cannot be kept from those who do not pay.
D)military technology is too expensive for private firms to provide.
E)it would be immoral for private firms to provide this essential commodity.

Question 72

Consider a remote village with a limited,freely available water supply and no government intervention in the allocation of water.In economics,the resulting outcome of a situation such as this is often referred to as

A)the Coase theorem.
B)the tragedy of the commons.
C)moral hazard.
D)adverse selection.
E)asymmetric information.

Question 73

A good example of a product that is both nonexcludable and nonrivalrous is

A)grazing land.
B)public information.
C)electricity.
D)food.
E)natural gas.

Question 74

Private markets will always provide too few public goods because

A)the private marginal cost is less than the social marginal cost.
B)it is unlawful for private firms to provide public goods.
C)of the negative externalities associated with these goods.
D)private markets will never provide goods at a price of zero,which is the efficient price.
E)private markets will never provide goods that they know the government could provide.

Question 75

How might a government intervene in a market to prevent the overuse of a common-property resource,such as an ocean fishery?

A)subsidies to the consumers of fish
B)reducing the marginal social cost such that marginal social cost equals marginal social benefit,thereby establishing allocative efficiency
C)subsidies to the firms catching the fish
D)a system of licences and quotas for fishers
E)encouraging the use of larger,more efficient trawlers to reduce the marginal private cost to fishers

Question 76

In economics,the term "public good" refers to a product

A)that only private producers will provide.
B)which consumers cannot be excluded from using.
C)that is produced by a publicly owned corporation.
D)that is widely advertised.
E)that has a very low marginal cost of production.

Question 77

Consider a remote village with a limited,freely available water supply and no government intervention in the allocation of water.In this case,each individual has an incentive to use water until their

A)private marginal benefit is zero.
B)private marginal cost is zero.
C)social marginal benefit is maximized.
D)social marginal cost is minimized.
E)private and social marginal costs are equal.

Question 78

Why are goods that are non-rivalrous and excludable (such as an uncrowded library or art gallery)often provided by the government?

A)Because when these goods are used beyond capacity,they would not be provided by private firms.
B)The marginal cost to society of providing access to one more user is zero,so it is allocatively efficient to provide this good at a price of zero.
C)Because the government can provide these goods with fewer resources,so it is productively efficient.
D)The marginal private benefit to the last user is greater than the marginal private cost.
E)The marginal benefit to society of providing access to one more user is zero,so it is allocatively efficient to provide this good at a price of zero.

Question 79

Which of the following are characteristics of a common-property resource?

A)rivalrous and excludable
B)non-rivalrous and non-excludable
C)non-rivalrous and excludable
D)rivalrous and non-excludable

Question 80

A public good is a product that is

A)produced by the government.
B)excludable but nonrivalrous.
C)nonexcludable and nonrivalrous.
D)rivalrous but nonexcludable.
E)excludable and rivalrous.