Question 1

One way the government of Alaska could prevent an inefficiently large production of crab fishing would be to:

Accepted Answer

By selling exclusive licenses for the right to fish, the government can limit the number of fishermen and boats in the industry, preventing an inefficiently large production of crab fishing. This would promote sustainability and balance in the industry while ensuring that the fishermen who are licensed have a fair chance at catching crabs. Subsidizing fishermen (A) may encourage overproduction and increase the number of boats on the water. Tax breaks (C) for efficient boats would not necessarily limit the number of boats or the amount of crabs caught. Allowing competition from foreign fishermen (D) could also increase the number of boats and cause overproduction.

Question 2

If policy makers provide only enough tradable permits to provide efficient use of a common resource,only those who _____ will use the resource.

Accepted Answer

Those who gain the most from using the resource will be willing to pay the most for the permits, ensuring that the resource is used efficiently.

Question 3

The problem with common resources is similar to the problem with negative externalities because:

Accepted Answer

Common resources and negative externalities both involve costs that are not borne by the individual producers or consumers involved, but rather by society as a whole. In the case of common resources, the marginal social cost of producing another unit exceeds the individual's marginal cost because the resource is being overused or depleted. In the case of negative externalities, the marginal social cost of producing another unit exceeds the individual's marginal benefit because the cost of the external harm caused by production is not accounted for by the producer or consumer.

Question 4

Whenever a species is threatened with extinction,it is likely that:

Accepted Answer

If no one has exclusive property rights to a species, there is no incentive for anyone to protect or conserve it. This can lead to the species becoming threatened or endangered.

Question 5

The marginal cost of producing an artificially scarce good is usually equal to:

Accepted Answer

The marginal cost of producing an artificially scarce good, such as digital products that can be replicated at no cost, is usually equal to zero.

Question 6

A Pigouvian tax can lead to the efficient level of production and consumption of:

Accepted Answer

A Pigouvian tax is a tax imposed on a good that generates negative externalities, such as pollution from the production of a common resource. By increasing the cost of production, the tax shifts the supply curve to the left, reducing the quantity produced and consumed to a socially optimal level. Therefore, a Pigouvian tax leads to the efficient level of production and consumption of a common resource.

Question 7

Computer software that you can download from the Internet for a price is an artificially scarce good because it is _____ but _____ in consumption.

Accepted Answer

Software that you must pay for to download is excludable because access can be restricted to paying customers. It is nonrival in consumption because one person's use does not diminish the ability of others to use it.

Question 8

The marginal social cost of a common resource is _____ than an individual's marginal cost,and without government intervention the market will allow provision of _____ of the common resource than is socially optimal.

Accepted Answer

The marginal social cost of a common resource is greater than an individual's marginal cost because it includes external costs not considered by individuals. Without government intervention, the market will allow provision of more of the common resource than is socially optimal, leading to overuse and depletion.

Question 9

Which example is BEST characterized as an artificially scarce good?

Accepted Answer

Artificially scarce goods are non-rivalrous but excludable, like downloadable music, which can be easily reproduced but access is restricted by charging a fee.

Question 10

Use the following to answer question:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.If the government forces the private-sector firms to internalize any external costs:

Accepted Answer

Internalizing the external cost would increase the private marginal cost for firms, causing them to produce less at any given price level. This means the supply curve would shift to the left, from S₁ to S₂, as shown in the figure. As a result, the price per unit would increase.

Question 11

Use the following to answer question:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.When the government intervenes to correct for the external cost,the output will _____ from _____ to _____.

Accepted Answer

When the government intervenes to correct for an external cost, the output decreases from the private equilibrium (W) to the socially efficient equilibrium (R). Therefore, the correct answer is fall; R; W.

Question 12

Use the following to answer question: Figure: Correcting for Market Failure -(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.Economists argue that,in an unregulated private market,too _____ is produced.In the figure,the supply curve (S₁)reflects _____ marginal cost.

Accepted Answer

The figure shows that the supply curve (S₁) reflects a private marginal cost that is higher than the social cost at the same level of production. This means that in an unregulated private market, too much is produced, leading to market failure. Therefore, economists argue that the correct amount of production can be achieved by regulating the market to reflect the socially optimal level of production, which is lower than the market equilibrium. Hence, the private marginal cost is much higher than the social cost.

Question 13

The source of inefficiency in the use of artificially scarce goods is similar to the source of inefficiencies created by:

Accepted Answer

A natural monopoly creates inefficiencies due to its ability to restrict output and raise prices, similar to artificially scarce goods where access is limited despite low marginal costs.

Question 14

Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat and some diesel fuel can go offshore,lower a crab pot,and harvest king crab.As a result,this common resource is overused.Which policy choice might produce the socially optimal king crab harvest?

Accepted Answer

By auctioning a limited number of licenses to harvest king crab, Alaska can control the number of crab boats and pots allowed in the water. This will limit the overuse of the resource and ensure that the harvest is socially optimal. Subsidizing the purchase of crab boats (A) would only encourage more people to enter the market and exacerbate the problem of overuse. Removing taxes on diesel fuel (C) may lower the cost of harvesting, but it will not address the issue of overuse. Removing trade barriers (D) may increase demand for king crab, but it will also increase the pressure on the resource and may lead to even greater overuse.

Question 15

Which example is considered an artificially scarce good?

Accepted Answer

A pay-per-view boxing match on cable television is considered an artificially scarce good because it is intentionally restricted to a limited number of viewers, creating the perception of exclusivity and value. The other options (a candy bar, a free art exhibit in a city park, and an interstate highway without tolls) are all examples of goods that are either freely available or not intentionally limited in supply.

Question 16

Use the following to answer question:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure)Use Figure: Correcting for Market Failure.There is an external cost in the market illustrated in the figure,and the two upward-sloping lines reflect private and social marginal costs.If the government intervenes to correct for the external cost,the new _____ will now reflect _____ costs.

Accepted Answer

When the government intervenes to correct for the external cost, the new supply curve will reflect both the private and external costs. This is shown in the figure where the new supply curve is S₂. The original supply curve reflected only private costs, but the new curve reflects the full cost to society, including the external cost.

Question 17

The government can intervene to avoid overfishing by using which approach(es)? I.assigning property rights
II.imposing a tax on usage
III.granting a limited number of tradable fishing permits

Accepted Answer

All three approaches (assigning property rights, imposing a tax on usage, and granting a limited number of tradable fishing permits) can be used by the government to avoid overfishing. Assigning property rights gives individuals a stake in the fishery and incentivizes them to conserve stocks. Imposing a tax on usage makes overfishing more expensive and disincentivizes excessive fishing. Granting a limited number of tradable fishing permits creates a cap on the amount of fish that can be caught, and incentivizes fishers to conserve fish stocks to maintain the value of their permits. A combination of approaches can be even more effective in preventing overfishing.

Question 18

The government can intervene to achieve the socially optimal quantity of a common resource by using which approach(es)? I.assigning property rights
II.imposing a tax on usage
III.granting a limited number of tradable permits to use the good

Accepted Answer

All three approaches are commonly used by the government to achieve the socially optimal quantity of a common resource. Assigning property rights can create an incentive for individuals to conserve the resource, while a tax on usage can reduce overconsumption by making it more expensive. Trading permits allow for the allocation of the resource among users, while ensuring the overall level of usage remains within a socially optimal level. Thus, the best choice is D, which includes all three approaches.

Question 19

Suppose the Alaskan king crab harvest is unregulated,and any person with a boat can go offshore,lower a crab pot,and harvest king crab.This common resource will likely be _____ because the marginal social cost of harvesting crabs _____ the market price of crab.

Accepted Answer

The common resource will be overfished because the marginal social cost of harvesting crabs exceeds the market price, leading to over-exploitation.

Question 20

In London,any motorist entering a particular area in the city center during certain specified times must pay a congestion fee equal to £11.50 per day,with fines for noncompliance rising to as high as £130.The congestion fee is:

Accepted Answer

The congestion fee is an attempt to internalize the costs of traffic delays and congestion by imposing a cost on the motorist that reflects the negative externality they impose on others. This incentivizes people to consider alternative modes of transport and reduce traffic and congestion during peak hours.

Quiz 17: Public Goods and Common Resources

One way the government of Alaska could prevent an inefficiently large production of crab fishing would be to:

If policy makers provide only enough tradable permits to provide efficient use of a common resource,only those who _____ will use the resource.

The problem with common resources is similar to the problem with negative externalities because:

Whenever a species is threatened with extinction,it is likely that:

The marginal cost of producing an artificially scarce good is usually equal to:

A Pigouvian tax can lead to the efficient level of production and consumption of:

Computer software that you can download from the Internet for a price is an artificially scarce good because it is _ but _ in consumption.

The marginal social cost of a common resource is _ than an individual's marginal cost,and without government intervention the market will allow provision of _ of the common resource than is socially optimal.

Which example is BEST characterized as an artificially scarce good?

The source of inefficiency in the use of artificially scarce goods is similar to the source of inefficiencies created by:

Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat and some diesel fuel can go offshore,lower a crab pot,and harvest king crab.As a result,this common resource is overused.Which policy choice might produce the socially optimal king crab harvest?

Which example is considered an artificially scarce good?

The government can intervene to avoid overfishing by using which approach(es) ? I.assigning property rights II.imposing a tax on usage III.granting a limited number of tradable fishing permits

The government can intervene to achieve the socially optimal quantity of a common resource by using which approach(es) ? I.assigning property rights II.imposing a tax on usage III.granting a limited number of tradable permits to use the good

Suppose the Alaskan king crab harvest is unregulated,and any person with a boat can go offshore,lower a crab pot,and harvest king crab.This common resource will likely be _ because the marginal social cost of harvesting crabs _ the market price of crab.

In London,any motorist entering a particular area in the city center during certain specified times must pay a congestion fee equal to £11.50 per day,with fines for noncompliance rising to as high as £130.The congestion fee is: