Question 1

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
A) private marginal benefit is zero.
B) private marginal cost is zero.
C) social marginal benefit is maximized.
D) social marginal cost is minimized.
E) private and social marginal costs are equal.

Accepted Answer

The answer of Consider a remote village with a limited,...

Question 2

One reason that national defence is a classic example of a public good is that
A) all citizens want national defence.
B) society deems it to be too important to be provided by the private sector.
C) the benefits that accrue to one person do not diminish the benefits available to others.
D) military technology is too expensive for private firms to provide.
E) it would be immoral for private firms to provide this essential commodity.

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, national defence is non-excludable (people cannot be excluded from the benefits) and non-rivalrous (consumption by one person does not reduce the amount available to others). This makes it difficult for private firms to provide national defence efficiently, leading society to deem it too important to be left solely to the private sector. All citizens wanting national defence, military technology being too expensive, or a perceived immorality of private firms providing it may be factors in the decision to provide national defence publicly, but they do not make it a classic example of a public good.

Question 3

Under what circumstances would it be efficient to charge a positive price for drivers to cross the Champlain Bridge in Montreal or the Lionʹs Gate Bridge in Vancouver?
A) when it is possible to exclude drivers from the bridge
B) when it is not possible to exclude drivers from the bridge
C) when the sum of marginal benefits to all drivers is positive
D) when the marginal private benefit to the last driver is greater than the marginal private cost to that driver
E) when congestion on the bridge means that the marginal cost of providing access to one more driver is positive

Accepted Answer

When congestion on the bridge means that the marginal cost of providing access to one more driver is positive, it would be efficient to charge a positive price for drivers to cross the bridge. This is because the cost of accommodating one more driver on the bridge is higher than the benefit that driver would receive from using the bridge. By charging a positive price, the number of drivers who use the bridge would decrease, reducing congestion and improving the efficiency of the overall transportation system.

Question 4

A public good is a product that is
A) produced by the government.
B) excludable but nonrivalrous.
C) nonexcludable and nonrivalrous.
D) rivalrous but nonexcludable.
E) excludable and rivalrous.

Accepted Answer

A public good is nonexcludable and nonrivalrous, meaning that it is not possible to exclude anyone from consuming the good, and consumption by one person does not reduce the amount available for others. Examples include fresh air and national defense.

Question 5

Which of the following statements about public goods is true?
A) They cannot be publicly provided.
B) They are unlikely to be provided by private, profit-seeking firms.
C) They are essentially negative externalities.
D) They respond to market signals.
E) The firms producing them must be listed on a public stock exchange.

Accepted Answer

Public goods are goods that are non-excludable and non-rival, meaning that once they are provided, no one can be excluded from benefiting from them and using them does not reduce their availability to others. These characteristics make it unlikely that profit-seeking firms will provide them because they cannot charge a price for their use and may not be able to recoup their costs.

Question 6

An efficient level of provision of a public good is achieved when
A) the cost of providing an extra unit of the good is equal to the valuation of each consumer of the extra unit.
B) the cost of providing an extra unit of the good is equal to the sum of the valuations of all consumers for that unit.
C) the cost of providing an extra unit of the good is equal to the price of the good.
D) the valuation of each consumer for the last unit of the good produced is zero.
E) voters are satisfied that an adequate amount of the good is being produced.

Accepted Answer

The answer of An efficient level of provision of a...

Question 7

Private markets will always provide too few public goods because
A) the private marginal cost is less than the social marginal cost.
B) it is unlawful for private firms to provide public goods.
C) of the negative externalities associated with these goods.
D) private markets will never provide goods at a price of zero, which is the efficient price.
E) private markets will never provide goods that they know the government could provide.

Accepted Answer

The answer of Private markets will always provide too few...

Question 8

In economics, the term ʺpublic goodʺ refers to a product
A) that only private producers will provide.
B) which consumers cannot be excluded from using.
C) that is produced by a publicly owned corporation.
D) that is widely advertised.
E) that has a very low marginal cost of production.

Accepted Answer

A public good is a product that is non-excludable, meaning that it is difficult or impossible to prevent someone from using it. This makes it more difficult for private producers to profit from producing the good, as they cannot charge users directly for its use. Examples of public goods include national defense, clean air, and a lighthouse.

Question 9

If you consume some good, and by doing so you diminish other peopleʹs possible use of that good, we say that the good is
A) rivalrous.
B) excludable.
C) a common resource.
D) not productively efficient.
E) a public good.

Accepted Answer

A rivalrous good is one where consuming it means others cannot consume it. This is in contrast to a non-rivalrous good, such as an idea, where one person can consume it without diminishing others' consumption.

Question 10

How might a government intervene in a market to prevent the overuse of a common -property resource, such as an ocean fishery?
A) subsidies to the consumers of fish
B) reducing the marginal social cost such that marginal social cost equals marginal social benefit, thereby establishing allocative efficiency
C) subsidies to the firms catching the fish
D) a system of licences and quotas for fishers
E) encouraging the use of larger, more efficient trawlers to reduce the marginal private cost to fishers

Accepted Answer

A system of licenses and quotas for fishers can limit the amount of fish that can be caught, thus preventing overuse of the common-property resource. This can be enforced by the government through monitoring and penalties for non-compliance. Subsidizing either consumers or firms catching the fish may only increase demand and exacerbate the overuse problem. Reducing the marginal social cost or encouraging the use of larger, more efficient trawlers may not be effective in preventing overuse of the resource.

Question 11

An example of a public good is
A) apples on a tree in a public park.
B) insurance.
C) street lighting.
D) air travel.
E) municipal transit service.

Accepted Answer

Street lighting is an example of a public good as it benefits everyone in the community by providing safer streets at night. It is non-excludable, meaning that no one can be prevented from using it, and non-rivalrous, meaning that the use of street lighting by one person does not diminish its availability for others. While the other options may have some elements of public goods (such as insurance pooling risk), they also involve exclusivity and/or rivalry.

Question 12

Which of the following is the best example of a public good?
A) a municipal swimming pool
B) a seat on an airplane flight
C) light from a lighthouse
D) a school bus
E) a publicly owned subway system

Accepted Answer

A lighthouse provides a non-excludable and non-rival good, as its light is available to anyone and its use by one person does not diminish its availability to others. This meets the definition of a public good. The other options either involve exclusion (e.g. a seat on a flight or a school bus) or rivalry (e.g. the use of a municipal swimming pool or a subway system during peak hours), making them private goods or common resources, but not public goods.

Question 13

Consider a remote village with a limited, freely available water supply and no government intervention in the allocation of water. In economics, the resulting outcome of a situation such as this is often referred to as
A) the Coase theorem.
B) the tragedy of the commons.
C) moral hazard.
D) adverse selection.
E) asymmetric information.

Accepted Answer

The situation described is an example of the tragedy of the commons, which occurs when a shared resource is overused and depleted because individuals don't have incentives to conserve it. In this case, because the water supply is freely available, people may use more water than they need, which ultimately leads to a depletion of the available supply.

Question 14

Consider a remote village with a limited, freely available water supply and no government intervention in the allocation of water. Economic theory predicts that the water will be
A) allocated efficiently because users will tend to use the water until marginal cost and marginal benefit are both equal to zero.
B) overexploited because users will tend to use the water until the marginal cost of providing the water is zero.
C) allocated efficiently because users will tend to use the water until the supply and demand are in equilibrium.
D) overexploited because users will tend to use the water until their marginal benefit is zero.
E) allocated efficiently because users will tend to use the water as though it were a public good.

Accepted Answer

In the absence of government intervention, users will tend to use the water until their marginal benefit is zero, which means that the water will be overexploited. This is because each user will only consider their own benefit from using the water and will not take into account the effect of their use on others. As a result, the total demand for water will exceed the available supply, leading to overuse and depletion of the water resource.

Question 15

A good example of a product that is both nonexcludable and nonrivalrous is
A) grazing land.
B) public information.
C) electricity.
D) food.
E) natural gas.

Accepted Answer

Public information is a good example of a product that is both nonexcludable and nonrivalrous. Nonexcludable means that it is impossible or impractical to exclude someone from using the product, while nonrivalrous means that one person's use of the product does not diminish the quantity or quality of the product available to others. Public information is freely available to anyone and its use by one person does not reduce its availability to others.

Question 16

An efficient amount of a public good is unlikely to be produced in a free market because
A) there is no way to prevent a person who is not willing to pay for the good from receiving benefits from the good.
B) of the high cost of producing the public good.
C) social benefits exceed social costs.
D) of the existence of moral hazard.
E) of the existence of adverse selection.

Accepted Answer

In a free market, individuals will only pay for goods that they directly benefit from. Since a public good is non-excludable, meaning that it is impossible to prevent someone who has not paid for it from benefiting from it, individuals have no incentive to pay for it. Therefore, the efficient amount of a public good is unlikely to be produced in a free market.

Question 17

Which of the following are characteristics of a common-property resource?
A) rivalrous and excludable
B) non-rivalrous and non-excludable
C) non-rivalrous and excludable
D) rivalrous and non-excludable

Accepted Answer

Common-property resources are rivalrous, meaning that consumption by one user reduces the availability of the resource for others, and non-excludable, meaning that it is difficult or impractical to limit access to the resource.

Question 18

Common-property fishing grounds are
A) often underexploited because non-excludability means there is little investment in the resource.
B) always efficiently exploited because fishermen now understand the dangers of over-fishing.
C) often overexploited because individual fishermen have no incentive to leave fish for the ʺnextʺ fisherman.
D) often overexploited because fishing grounds are rivalrous and excludable.
E) often overexploited because fishermen are concerned with preserving fish stocks for future fishermen.

Accepted Answer

Common-property fishing grounds are often overexploited because individual fishermen have no incentive to leave fish for the "next" fisherman. This is because no individual fisherman owns the fishing grounds and therefore, has no control over how much fish is caught by others. As a result, each fisherman tries to catch as much fish as possible before someone else does, leading to overfishing and depletion of the resource. This problem is known as the tragedy of the commons.

Question 19

One reason that national defence is a classic example of a public good is that
A) all citizens want national defence.
B) society deems it to be too important to be provided by the private sector.
C) the benefits of national defence cannot be kept from those who do not pay.
D) military technology is too expensive for private firms to provide.
E) it would be immoral for private firms to provide this essential commodity.

Accepted Answer

National defence is a classic example of a public good because its benefits cannot be excluded from those who do not pay for it. This is known as the non-excludability characteristic of public goods. All citizens may not want national defence, and it is possible for private firms to provide military technology but the non-excludability characteristic makes it undesirable for the private sector to provide it. The importance of national defence is another reason why it is primarily provided by the government, but it is not the primary reason why it is considered a public good.

Question 20

Why are goods that are non-rivalrous and excludable such as an uncrowded library or art gallery) often provided by the government?
A) Because when these goods are used beyond capacity, they would not be provided by private firms.
B) The marginal cost to society of providing access to one more user is zero, so it is allocatively efficient to provide this good at a price of zero.
C) Because the government can provide these goods with fewer resources, so it is productively efficient.
D) The marginal private benefit to the last user is greater than the marginal private cost.
E) The marginal benefit to society of providing access to one more user is zero, so it is allocatively efficient to provide this good at a price of zero.

Accepted Answer

The answer of Why are goods that are non-rivalrous and...

Quiz 16: Market Failures and Government Intervention

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

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

Under what circumstances would it be efficient to charge a positive price for drivers to cross the Champlain Bridge in Montreal or the Lionʹs Gate Bridge in Vancouver?

A public good is a product that is

Which of the following statements about public goods is true?

An efficient level of provision of a public good is achieved when

Private markets will always provide too few public goods because

In economics, the term ʺpublic goodʺ refers to a product

If you consume some good, and by doing so you diminish other peopleʹs possible use of that good, we say that the good is

How might a government intervene in a market to prevent the overuse of a common -property resource, such as an ocean fishery?

An example of a public good is

Which of the following is the best example of a public good?

Consider a remote village with a limited, freely available water supply and no government intervention in the allocation of water. In economics, the resulting outcome of a situation such as this is often referred to as

Consider a remote village with a limited, freely available water supply and no government intervention in the allocation of water. Economic theory predicts that the water will be

A good example of a product that is both nonexcludable and nonrivalrous is

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

Which of the following are characteristics of a common-property resource?

Common-property fishing grounds are

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

Why are goods that are non-rivalrous and excludable such as an uncrowded library or art gallery) often provided by the government?