Question 1

An example of a rivalrous good is

Accepted Answer

A visit to the dentist is a rivalrous good because it is a service that, once consumed by one person, cannot be consumed by another at the same time.

Question 2

Most economists who study "public choice theory" now agree that an important possible source of "government failure" is

Accepted Answer

Public choice theory emphasizes that politicians and civil servants have their own self-interests that may conflict with the national interest, leading to government failure. This is often referred to as the "principal-agent problem," where the agents (politicians and civil servants) may not act in the best interest of the principal (citizens).

Question 3

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

Accepted Answer

National defence is a classic example of a public good because the benefits that accrue to one person do not diminish the benefits available to others. In other words, it is non-excludable and non-rivalrous, and everyone can benefit from it without reducing its availability to others.

Question 4

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

Accepted Answer

When production of good X generates a negative externality, the social cost of producing the good is greater than the private cost. In a competitive free market, firms only consider the private cost when making production decisions, leading to a production quantity that is greater than socially optimal. This leads to overproduction, which leads to negative effects on society such as pollution or reduced public health.

Question 5

It is inefficient for the government to charge a price for consuming public health information because

Accepted Answer

Public health information is a non-rivalrous good, meaning that more people consuming it does not make it more expensive to produce. Therefore, charging a price for consuming it would not be efficient as it would not cover any additional costs and could prevent some people from accessing important information that could benefit public health.

Question 6

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

Accepted Answer

Diminishing marginal returns is a concept in economics that does not necessarily constitute market failure. It refers to the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased while holding all other factors of production constant. This is a normal economic phenomenon that does not necessarily imply inefficiency or market failure.

Question 7

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

Accepted Answer

The private marginal benefit is zero when the individual has no incentive to use more water.

Question 8

A good example of a public good is

Accepted Answer

Light from a lighthouse is a classic example of a public good because it is non-excludable (people cannot be prevented from benefitting from it) and non-rival (one person's use of the light does not diminish its availability for others).

Question 9

The problem with externalities is essentially one of

Accepted Answer

Externalities occur when the private costs of an economic decision do not equal the social costs or benefits. This creates a discrepancy between private and social costs, which is the fundamental problem with externalities. The market alone may not be able to solve these problems, as it may not take into account the social costs or benefits of economic decisions.

Question 10

Common- property fishing grounds are

Accepted Answer

Common-property fishing grounds are often overexploited because individual fishermen have no incentive to leave fish for the "next" fisherman. Since there is no ownership of the resource, each fisherman tries to maximize their own catch, leading to overfishing and depletion of the resource.

Question 11

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

Accepted Answer

In a free market, individuals only pay for goods that they consume themselves. Since public goods have the characteristic of non-excludability, it is impossible to prevent someone who has not paid for the good from consuming it. This free-rider problem leads to underproduction of the public good in a free market.

Question 12

One cause of allocative inefficiency is

Accepted Answer

The answer of One cause of allocative inefficiency is
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Question 13

Why would it be inefficient for the government to charge a price for consuming a public good such as national defence?

Accepted Answer

Public goods like national defence are non-excludable and non-rivalrous, meaning the marginal cost of providing them to an additional person is zero. Charging a price would be inefficient as it would exclude some individuals without reducing the cost of provision.

Question 14

The construction of the TransCanada highway is an example of government intervention through

Accepted Answer

The TransCanada highway was constructed as a public good provided by the government, which is an example of public provision.

Question 15

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

Accepted Answer

Oligopolistic firms often drive innovation and productivity growth, which are key components of economic growth. Government intervention aimed at promoting allocative efficiency could disrupt these firms' operations and incentives, potentially slowing down economic growth.

Question 16

A public good is a product that is

Accepted Answer

A public good is a product that is nonexcludable, meaning that it is difficult to prevent people from using it, and nonrivalrous, meaning that one person's use does not reduce its availability to others. Examples of public goods include national defense and clean air.

Question 17

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

Accepted Answer

The howling of the dogs is likely to disturb the neighbours at night, resulting in lost sleep and potentially reduced quality of life for them. This is an example of a negative externality, where the homeowner's decision to keep loud dogs has a negative impact on others around them.

Question 18

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?

Accepted Answer

The government's role as the holder of a monopoly of violence is fundamental because it ensures law and order, protecting citizens from violence and coercion, which is essential for a society to function safely and for economic and social activities to occur.

Question 19

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

Accepted Answer

In a free-market economy, businesses are driven by the pursuit of profits. This means that they are constantly seeking ways to produce goods and services more efficiently and at a lower cost, while still maintaining quality. As more businesses enter a market, competition also drives down prices, forcing businesses to become even more efficient to stay competitive. As a result, the market is constantly adjusting toward equilibrium, where the supply and demand for goods and services are balanced and profits are maximized.

Question 20

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

Accepted Answer

At the socially optimal level of provision of a rivalrous good, the marginal cost of production of the last unit of the good is equal to the consumers' marginal willingness to pay. This is because the goal of the market is to allocate resources efficiently, and the socially optimal level is where the marginal cost equals marginal benefit (the consumers' willingness to pay). Therefore, choice A is correct.

Quiz 16: Market Failures and Government Intervention