Question 1

The economic justification for public subsidies to university research is based on the

Accepted Answer

The external benefits of research and development refer to the positive spillover effects that new knowledge and innovations have on society as a whole, such as increased productivity, new products and services, and improved quality of life. These benefits are not fully captured by the private sector and thus create a market failure which justifies public subsidies to university research.

Question 2

National defense and coastal lighthouses are examples of

Accepted Answer

National defense and coastal lighthouses are public goods because they are non-excludable (people cannot be excluded from using them) and non-rival (one person’s use does not diminish the benefits available to others).

Question 3

Public goods are

Accepted Answer

Public goods are those goods or services that are nondepleteable, meaning that their consumption by one individual does not reduce their availability to others, and nonexcludable, meaning that no one can be effectively excluded from using the good or service. Examples of public goods include national defense, public health, and scientific research.

Question 4

Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking.Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums.Also, smokers hurt nonsmokers as a result of "passive smoke." The Rand Corporation estimates these costs to be 29 cents per pack of cigarettes.Cigarette taxes average 37 cents per pack.Based on the economist's definition of efficiency, it follows that

Accepted Answer

The economist's definition of efficiency involves aligning costs with benefits. If the external costs (healthcare costs and passive smoke harm) are estimated at 29 cents per pack and the tax is 37 cents, the tax exceeds the external costs by 8 cents. This suggests that the tax is higher than necessary to cover the external costs, leading to a situation where cigarette production might be lower than the efficient amount because the tax reduces consumption more than is needed to account for the external costs.

Question 5

There is much world concern over the deteriorating condition of the pyramids and other historical structures in Egypt.While people of all nations enjoy visiting these structures, there has been little financial support for preservation coming from within Egypt or from elsewhere.Economists would describe this as an example of

Accepted Answer

The situation described is an example of a free-rider problem. This refers to a situation in which people benefit from a public good (such as the preservation of historical structures) without contributing financially to its upkeep. The fact that there has been little financial support from within Egypt or from elsewhere suggests that people are not willing to pay for the upkeep of these structures, even though they enjoy the benefits of their preservation.

Question 6

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

Accepted Answer

TV signals are non-excludable and non-rival in consumption, which makes them a classic example of a public good. This means that once the signal is broadcasted, anyone can access it without reducing its availability for others, and it's difficult to exclude anyone from accessing it. This makes it challenging for cable and subscription TV companies to prevent signal theft since they cannot easily exclude non-paying customers from accessing the signal.

Question 7

Many motorcycle riders want to feel the wind of the open road without the constriction of helmets.But riders without helmets are more likely to suffer severe injuries that run up hospital bills at public expense.Which of the following is most likely to reduce the costs imposed on hospitals by helmetless riders?

Accepted Answer

Fining riders caught not wearing helmets would deter them from riding without helmets, reducing the number of severe injuries and hospital costs. Taxing helmet sales and subsidizing hospitals would not directly address the problem of helmetless riders. Reimbursing injured riders' hospital bills may provide financial relief, but it does not address the root problem of preventing injuries in the first place.

Question 8

An efficient tax for a product with detrimental externalities would equal

Accepted Answer

The most efficient tax for a product with detrimental externalities would be an amount that equals the difference between the marginal social cost of producing the product and the marginal private cost of producing it. This is because the marginal social cost takes into account the negative effects of the product on third parties, while the marginal private cost only reflects the cost to the producer. By taxing the producer an amount equal to the difference between these two costs, the producer is incentivized to take into account the externalities and produce the product at a socially optimal level. Therefore, the correct answer is D, marginal social cost minus marginal private cost.

Question 9

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

Accepted Answer

The grade for the project is a public good because it is non-excludable and non-rivalrous. Non-excludable because it cannot be easily withheld from the group members and non-rivalrous because one person's consumption of the good (i.e. the grade) does not diminish its availability to others in the group.

Question 10

Governments can most effectively encourage a firm to produce the efficient level of output of a good whose production causes a beneficial externality by

Accepted Answer

By subsidizing the production of the good, the government can decrease the firm's costs of production, which will encourage the firm to produce more of the good. This is an effective way to incentivize the firm to produce the efficient level of output since the positive externality is not reflected in the market price of the good. The other options, such as increasing demand, taxing production, or imposing a price ceiling, may not necessarily result in producing the efficient level of output and could potentially create market inefficiencies.

Question 11

A public good is

Accepted Answer

A public good is nonexcludable, meaning it cannot be easily denied to individuals. It is also nondepletable, meaning it can be used by one individual without reducing the amount available to others. Therefore, the correct choice is D, as it is the only option that describes a good that is never depletable and always nonexcludable.

Question 12

Government often finds it difficult to cope with externalities because

Accepted Answer

Externalities often involve costs and benefits that are difficult to quantify in monetary terms, such as the value of clean air or the cost of pollution on human health. This makes it difficult for the government to fully understand the extent of the externality and how to address it effectively.

Question 13

In a competitive market without intervention, pure public goods would be

Accepted Answer

Pure public goods cannot be provided efficiently in a competitive market without intervention due to the free-rider problem. In this situation, individuals can consume the good without paying for it, making it unprofitable for firms to produce the good. Therefore, without intervention, pure public goods will not be produced.

Question 14

Externalities are failures of

Accepted Answer

Externalities are costs or benefits that are not reflected in the market price of a good, and therefore the market fails to correctly price resources. This means that the market is not capturing the true social cost or benefit of the production or consumption of the good, and thus the market is imperfect.

Question 15

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Accepted Answer

The noncontributors are benefiting from the concerts without paying for them, making them free riders. This is a classic example of a free rider problem.

Question 16

Producers of computer software are plagued with the problem of "pirating," that is, many people copy software legally purchased by others.The industry estimates that for each legal copy of a program, there are two pirated copies in use.The industry wants strict laws for the enforcement of its "intellectual property rights," but enforcement is obviously very difficult.Economists call this problem

Accepted Answer

The problem described in this scenario is nonexcludability, meaning that it is difficult or impossible to exclude people from the benefits of the product. In this case, once someone has legally purchased the software, it is difficult to prevent others from pirating and using it without payment. This is a classic example of a nonexcludable good, and is often cited as an example of why strict intellectual property rights can be challenging to enforce.

Question 17

A true public good is characterized by

Accepted Answer

A true public good is non-rivalrous and non-excludable, meaning that it is not depletable and cannot be excluded from anyone's enjoyment.

Question 18

An appropriate government policy toward negative externalities is to

Accepted Answer

Imposing a tax or fine on the activity that creates negative externality is the most appropriate government policy. This creates a cost for the individuals or firms engaging in the activity, thereby discouraging them from doing so. It also provides an incentive for them to find more efficient and less detrimental ways of engaging in the activity. Subsidizing the activity or paying money to the party that creates the negative externality would only encourage the behavior, worsening the problem. Imposing a tax on recipients of the negative externality would not address the root cause of the problem and may be difficult to enforce.

Question 19

A public good is

Accepted Answer

A public good is characterized by its non-excludability, meaning its benefits cannot be restricted to a small group of people, and its non-rivalrous nature, where one person's consumption of the good does not reduce the amount available for others.

Question 20

The "free rider" problem occurs when a good is

Accepted Answer

The "free rider" problem occurs when a good is not excludable, meaning that individuals cannot be prevented from consuming the good even if they don't contribute to its production or provision. This creates a situation where individuals may choose not to pay for the good but still benefit from it, leading to underinvestment in its production or provision.

Quiz 15: The Shortcomings of Free Markets

The economic justification for public subsidies to university research is based on the

National defense and coastal lighthouses are examples of

Public goods are

The cable and subscription TV business is plagued with the problem of "signal theft." People use illegal receivers to capture the company's signal without paying.Enforcement of the company's property right is very expensive.This problem emerges because TV signals are basically

An efficient tax for a product with detrimental externalities would equal

Students in a class are assigned to groups to work on a project.A grade will be given for each project, and everyone in the group will receive that grade.For the members of a particular group, the grade is a

Governments can most effectively encourage a firm to produce the efficient level of output of a good whose production causes a beneficial externality by

A public good is

Government often finds it difficult to cope with externalities because

In a competitive market without intervention, pure public goods would be

Externalities are failures of

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

A true public good is characterized by

An appropriate government policy toward negative externalities is to

A public good is

The "free rider" problem occurs when a good is