Question 1

The essential reason some species of whales have nearly been driven to extinction is that:
A)it is difficult to define and enforce property rights to whales.
B)the demand for whales is extremely high.
C)the price of whales is very low.
D)experienced whalers find it easy to catch whales.

Accepted Answer

The fact that it is difficult to define and enforce the property rights to whales means that whalers do not adequately take into consideration the fact that harvesting an extra whale today reduces the breeding population, and hence the size of the future whale population.

Question 2

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number of Drivers } \
\text { Who Leave at 8 a.m. }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Camunute Time }
\end{array} & \begin{array} { c } 
\text { Murginal } \
\text { Bemefit }
\end{array} \
\hline 100 & 30 \text { minutes } & \$ 10 \
\hline 200 & 65 \text { mirutes } & \$ 8 \
\hline 300 & 110 \text { minutes } & \$ 4 \
\hline 400 & 170 \text { mirutes } & \$ 3 \
\hline 500 & 260 \text { rinutes } & \$ 1 \
\hline
\end{array}$$  
If there is no charge to use the highway, then one would expect that ________ than the socially optimal number of drivers will leave at 8 a.m. because ________.
A)more; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time
B)more; the social marginal benefit of using the highway is greater than the private marginal benefit
C)less; each driver's use of the highway imposes an external cost on other drivers by increasing the commute time
D)less; the private marginal benefit of using the highway is greater than the social marginal benefit

Accepted Answer

Each driver does not consider the additional congestion they create for others when deciding to use the highway at 8 a.m., leading to more drivers choosing to leave at this time than is socially optimal. This behavior increases the overall commute time for everyone, representing an external cost not accounted for in individual decisions.

Question 3

If it is possible to place a commonly held resource under private ownership, then:
A)the tragedy of the commons can be solved.
B)the tragedy of the commons becomes even worse.
C)the privately held resource will be overused relative to the social optimum.
D)the privately held resource will be underused relative to the social optimum.

Accepted Answer

Assigning property rights solves the tragedy of the commons because anyone who owns the resource will fully consider the cost of its use.

Question 4

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. Compared to a town in which all residents collectively decide on how much water to use, water use will likely be ________ in Dry Gulch.
A)higher
B)the same
C)lower
D)the same or lower

Accepted Answer

Collective decision-making in the other town will avoid the tragedy of the commons by taking into account the external cost of water use.

Question 5

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
If each villager is purely self-interested, how many goats will be sent onto the commons?
A)2
B)3
C)4
D)5

Accepted Answer

Each villager, acting in their own self-interest and without coordination, will choose to buy a goat because even at the lowest income per goat ($5/year when all 5 goats are on the commons), it is still more profitable than buying a government bond that pays 10 percent interest on $50 ($5/year). Since villagers prefer buying a goat when indifferent, all five will choose to buy and send a goat onto the commons.

Question 6

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of:
A)an efficient subsidy.
B)the tragedy of the commons.
C)excess supply in the market.
D)a good with positive externalities.

Accepted Answer

Students face a marginal price of zero and so take more food than is optimal.

Question 7

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The residents of Dry Gulch will overuse water relative to the social optimum because ________.
A)each resident will fail to adequately consider the external cost of his or her own water use
B)water is a scarce resource
C)each resident will fail to adequately consider the external benefit of his or her own water use
D)the marginal cost of water is increasing

Accepted Answer

Each resident's use of water imposes an external cost because it lowers the availability of water to the other residents.

Question 8

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number of Drivers } \
\text { Who Leave at 8 a.m. }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Camunute Time }
\end{array} & \begin{array} { c } 
\text { Murginal } \
\text { Bemefit }
\end{array} \
\hline 100 & 30 \text { minutes } & \$ 10 \
\hline 200 & 65 \text { mirutes } & \$ 8 \
\hline 300 & 110 \text { minutes } & \$ 4 \
\hline 400 & 170 \text { mirutes } & \$ 3 \
\hline 500 & 260 \text { rinutes } & \$ 1 \
\hline
\end{array}$$  
One way for the government to increase economic efficiency would be for it to:
A)require all 500 drivers to collectively decide when each should leave for work.
B)subsidize gasoline consumption.
C)require employers to allow workers to arrive late for work.
D)charge a toll to use the highway during rush hour.

Accepted Answer

Charging a toll during rush hour can help manage demand for road space, reducing congestion and making commute times more efficient, aligning with the principle of using pricing mechanisms to manage scarce resources and improve economic efficiency.

Question 9

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump, and charging residents for each gallon of water used. This would:
A)have no effect on water use.
B)discourage residents from using too much water.
C)convert private property to public property.
D)reduce total economic surplus.

Accepted Answer

If residents had to pay for water, they would use less.

Question 10

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
If the villagers purchase the socially optimal number of goats and bonds, then total village income will be ________.
A)$250
B)$125
C)$70
D)$15

Accepted Answer

The answer of A village has five residents, each of...

Question 11

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat.  
$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
The villagers will buy a year-old goat if the goat can be sold for a price of at least ________ when it is 2 years old.
A)$55
B)$75
C)$70
D)$65

Accepted Answer

The villagers will buy a goat if the income from the goat is at least as much as the interest from the bond, which is $50 * 10% = $5. According to the table, a goat sold for $55 when 2 years old provides an income of $5 per year, which matches the interest from the bond. Therefore, villagers will buy a goat if it can be sold for at least $55 when it is 2 years old.

Question 12

Since the cost of using more of any resource is ________, viewing any resource's price as zero leads to ________.
A)positive; underutilization
B)negative; overutilization
C)positive; a surplus
D)positive; overutilization

Accepted Answer

The cost of using any natural resource is positive, so viewing the resource's price as zero implies that the resource will be overused relative to the social optimum.

Question 13

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. In Dry Gulch, the supply of water is:
A)perfectly inelastic.
B)perfectly elastic.
C)upward-sloping.
D)downward-sloping.

Accepted Answer

The information given states that as more water is used, it is necessary to dig deeper wells at a higher cost. This indicates increasing opportunity costs.

Question 14

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
What is the socially optimal number of goats to be sent out onto the commons?
A)5
B)4
C)3
D)2

Accepted Answer

The socially optimal number of goats is determined by maximizing the total income from all goats combined, without overgrazing the commons. With 3 goats, the total income is $20/goat/year * 3 goats = $60/year, which is the highest total income before the marginal income per goat starts to decrease more significantly.

Question 15

Total economic surplus will be ________ in nations with well-defined property rights than in nations with poorly-defined property rights.
A)less predictable
B)no different
C)higher
D)lower

Accepted Answer

The tragedy of the commons can be solved if property rights are well defined, leading to greater economic surplus.

Question 16

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
What will be the total village income if each villager decides how to invest based on his or her individual self-interest?
A)$5
B)$125
C)$75
D)$25

Accepted Answer

The answer of A village has five residents, each of...

Question 17

The essential cause of the tragedy of the commons is the fact that:
A)it can be difficult to solve the free-rider problem.
B)one person's use of a commonly held resource imposes an external cost on others.
C)when a resource has no price, it leads to a positional externality.
D)governments may not tax activities that generate negative externalities.

Accepted Answer

The essential cause of the tragedy of commons is the fact that one person's use of a commonly held resource imposes an external cost on others by making the resource less valuable.

Question 18

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number af gants } \
\text { an the carmuns }
\end{array} & \begin{array} { c } 
\text { Price per 2-year } \
\text { ald poat (5) }
\end{array} & \begin{array} { c } 
\text { Incame per } \
\text { gant (\$/year) }
\end{array} \
\hline 1 & 80 & 30 \
\hline 2 & 75 & 25 \
\hline 3 & 70 & 20 \
\hline 4 & 65 & 15 \
\hline 5 & 55 & 5 \
\hline
\end{array}$$  
When the each villager decides how to invest based on his or her narrow self-interest, total village income will be ________ when the village collectively decides how to invest.
A)lower than
B)higher than
C)the same as
D)either higher than or lower than depending on the price of the goats

Accepted Answer

When each villager decides based on narrow self-interest, they will all choose to buy goats due to the higher income potential compared to the bond's fixed 10% interest, despite the diminishing returns as more goats graze the commons. This leads to overgrazing and lower total income compared to a collective decision that could optimize the number of goats for maximum collective income.

Question 19

Which of the following is most likely to be used efficiently?
A)A privately-owned natural resource
B)A private good that entails an external cost
C)A publicly-owned natural resource
D)A private good that entails an external benefit

Accepted Answer

Private ownership is one solution to the tragedy of the commons.

Question 20

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting.  
$$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Number of Drivers } \
\text { Who Leave at 8 a.m. }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Camunute Time }
\end{array} & \begin{array} { c } 
\text { Murginal } \
\text { Bemefit }
\end{array} \
\hline 100 & 30 \text { minutes } & \$ 10 \
\hline 200 & 65 \text { mirutes } & \$ 8 \
\hline 300 & 110 \text { minutes } & \$ 4 \
\hline 400 & 170 \text { mirutes } & \$ 3 \
\hline 500 & 260 \text { rinutes } & \$ 1 \
\hline
\end{array}$$ If commuters view highway use as having a price of zero, then one can predict that ________ drivers will leave for downtown at 8:00 a.m.
A)500
B)400
C)300
D)200

Accepted Answer

If commuters perceive the price of highway use as zero, they will continue to use it until the marginal benefit equals zero or is minimized. The table shows that the marginal benefit decreases as more drivers use the highway, but it never reaches zero. Therefore, the maximum number of drivers (500) will leave for downtown at 8:00 a.m., as they are not deterred by increasing commute times or decreasing marginal benefits as long as the perceived cost (price) of highway use is zero.

Quiz 11: Externalities, Property Rights, and the Environment

The essential reason some species of whales have nearly been driven to extinction is that:

If it is possible to place a commonly held resource under private ownership, then:

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of:

Since the cost of using more of any resource is , viewing any resource's price as zero leads to .

Total economic surplus will be ________ in nations with well-defined property rights than in nations with poorly-defined property rights.

The essential cause of the tragedy of the commons is the fact that:

Which of the following is most likely to be used efficiently?