Question 1

Which of the following is an example of a common resource?

Accepted Answer

Common resources are those that are non-excludable but rivalrous, meaning they are available to everyone but can be depleted. The Sumatran tiger population in the wild is a common resource because it is accessible to everyone but can be diminished through overuse or poaching.

Question 2

Figure 5-15
  
Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case, what does S₂ represent?

Accepted Answer

S₂ represents the social marginal cost of harvesting salmon. Since overfishing has led to a market equilibrium output that is below the economically efficient output, the social marginal cost (which includes the cost of depletion of the resource) is greater than the private marginal cost of harvesting salmon.

Question 3

The "tragedy of the commons" refers to the phenomenon where

Accepted Answer

The tragedy of the commons occurs when people overuse a common resource that is shared among many individuals. This leads to depletion of the resource and a negative outcome for everyone involved. Examples of common resources that can be subject to the tragedy of the commons include fisheries, forests, and grazing lands.

Question 4

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?

Accepted Answer

Each person values the service at $50, which is greater than the cost of $40 per person if they split it evenly. Therefore, hiring a housecleaner would provide each of them with a net gain in consumer surplus.

Question 5

One difference between the demand for a private good and that for a public good is that

Accepted Answer

The demand for a private good is based on individual preferences and decisions, whereas the demand for a public good is based on collective preferences and decisions. With a private good, each consumer can choose the quantity they want to consume based on their individual preferences and willingness to pay. However, with a public good, the same quantity is consumed by everyone because it is non-excludable and non-rivalrous. Thus, everyone benefits from the provision of the public good regardless of their individual contributions.

Question 6

Which of the following is an example of a common resource?

Accepted Answer

Sea otters in the coastal waters of the Pacific Ocean are a common resource because they are not privately owned and their use is non-excludable. Anyone can fish for sea otters in the coastal waters, and there is no way to prevent others from doing so.

Question 7

Figure 5-15
  
Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-15.Identify the area that shows the deadweight loss from overfishing.

Accepted Answer

The answer of Figure 5-15
  
Figure 5-15 shows the...

Question 8

Common resources differ from public goods in that

Accepted Answer

Common resources are rival in consumption, meaning that the use of the resource by one person reduces the amount available for others. Public goods, on the other hand, are non-rival in consumption, meaning that one person's use does not reduce its availability to others. Option A is incorrect as it is the opposite of the true distinction. Option C is also incorrect as public goods are not necessarily owned by the government. Option D is incorrect as both common resources and public goods may or may not be renewable or have limits to production.

Question 9

Overuse of a common resource may be avoided by all of the following methods except

Accepted Answer

Government taking ownership of private common resources is not a method for avoiding overuse, but rather a potential solution for managing and regulating the use of common resources. The other options listed are all methods for avoiding overuse, by either limiting the quantity consumed, assigning economic value through charging or permit systems, or a combination of both.

Question 10

In economics, the term "free rider" refers to

Accepted Answer

A free rider is a person who benefits from a public good or service without paying for it. Public goods, such as national defense, highways, and clean air, are non-excludable, meaning that it is difficult or impossible to prevent someone from using them, and non-rivalrous, meaning that one person's use of the good does not diminish its availability to others. As a result, free riding can occur, where someone enjoys the benefits of the public good without contributing to its provision.

Question 11

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

Accepted Answer

The government is likely to use a cost-benefit analysis to determine the quantity of a public good that should be supplied. This involves evaluating the costs and benefits of producing the good to determine if it is worth the investment. Cost-benefit analysis takes into account both the monetary and non-monetary costs and benefits of the public good. By comparing the costs and benefits, the government can determine the optimal quantity of the good to produce.

Question 12

The market demand for a public good can be determined by

Accepted Answer

The market demand for a public good can be determined by adding up how much each consumer is willing to pay for each unit of the public good. This is because public goods are non-excludable and non-rivalrous, meaning that they can't be withheld from those who don't pay, and one person's consumption doesn't reduce the amount available to others. Therefore, the willingness to pay of each individual is the best indicator of the total demand for the public good.

Question 13

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Accepted Answer

The individual faces lower private costs compared to the higher social costs, leading to overexploitation as they do not bear the full cost of depletion.

Question 14

For-profit producers will produce only private goods because

Accepted Answer

For-profit producers focus on private goods because they can exclude non-payers, ensuring that only those who pay can enjoy the benefits, making it profitable.

Question 15

Which of the following exemplifies the tragedy of the commons?

Accepted Answer

The tragedy of the commons is a situation where individuals use a shared resource for their own benefit, which ultimately leads to the depletion or destruction of the resource. In this case, the Malaysian tapir is a shared resource being hunted and killed for personal gain, resulting in its potential extinction.

Question 16

How does the construction of a market demand curve for a private good differ from that for a public good?

Accepted Answer

For private goods, the market demand curve is constructed by horizontally summing the quantities each consumer is willing to buy at each price. For public goods, the market demand curve is constructed by vertically summing the prices each consumer is willing to pay for each quantity.

Question 17

Private producers have no incentive to provide public goods because

Accepted Answer

Private producers have no incentive to provide public goods because once produced, it will not be possible to exclude those who do not pay for the good. This leads to the free-rider problem where individuals can benefit from public goods without contributing to their production. As a result, private producers cannot capture the full value of their production and may not be able to earn profits.

Question 18

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Suppose Bella is lazy and a spendthrift and Sefronia suspects that Bella will be willing to pay $80.What is Sefronia likely to do, given that she is as rational as any other person?

Accepted Answer

Sefronia might claim she is not willing to pay, hoping Bella will cover the full cost due to her spendthrift nature.

Question 19

Figure 5-15
  
Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂.
-Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case, what does S₁ represent?

Accepted Answer

S₁ represents the private marginal cost of harvesting salmon, as it reflects the costs incurred by individual fishermen without accounting for the external costs of overfishing on the environment and future fish populations.

Question 20

A tragedy of the commons occurs when a resource is

Accepted Answer

A tragedy of the commons occurs when a resource is rival (meaning consumption by one individual decreases the amount available for others) and nonexcludable (meaning it is difficult to prevent others from using it). The tragedy arises because no individual has an incentive to conserve or use the resource responsibly, and without intervention, the resource may become depleted or destroyed.

Quiz 5: Externalities, Environmental Policy, and Public Goods

Which of the following is an example of a common resource?

The "tragedy of the commons" refers to the phenomenon where

Sefronia and Bella share an apartment and they are deciding whether or not to purchase a weekly housecleaning service.The value of the service to each of them is $50 and it costs $80 to hire a housecleaner.Should they hire a housecleaner?

One difference between the demand for a private good and that for a public good is that

Which of the following is an example of a common resource?

Common resources differ from public goods in that

Overuse of a common resource may be avoided by all of the following methods except

In economics, the term "free rider" refers to

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

The market demand for a public good can be determined by

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

For-profit producers will produce only private goods because

Which of the following exemplifies the tragedy of the commons?

How does the construction of a market demand curve for a private good differ from that for a public good?

Private producers have no incentive to provide public goods because

A tragedy of the commons occurs when a resource is