Question 1

It is common knowledge that many national parks have become overused. One possible solution to this problem is to:

Accepted Answer

Varying entrance fees depending on peak holiday season, low season or special events can help manage the number of people visiting the park. This can encourage visitors to come during off-peak times when fees are lower, reducing overcrowding during peak holiday periods. Additionally, higher fees during special events (e.g. concerts, festivals) can help fund additional park infrastructure and staff to accommodate the increased visitor numbers.

Question 2

Andy is deciding whether to undertake some scientific research into developing a new supercomputer. He believes he can make a lot of money from his research. What are some problems he might encounter in obtaining remuneration for his work?

Accepted Answer

Free riding is a possibility in scientific research where others may benefit from the results without contributing to the cost of the research. This could reduce the amount of revenue that Andy can obtain from his invention.

Question 3

The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying from exposure to a hazardous chemical used in the production of diet soft drinks is 0.0005. The cost of imposing a regulation that would ban this chemical is $18 million. If each person saved has a value equal to $10 million, how many people must the policy affect in order for benefits to exceed costs?

Accepted Answer

The answer of The Occupational Safety and Health Administration (OSHA)...

Question 4

Many species of animals are common resources and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species, even though there is such a high demand for beef?

Accepted Answer

The answer of Many species of animals are common resources...

Question 5

Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item from the menu and they will share all dishes. When the final bill for the meal comes, they decide that they will split the cost evenly among each of the people at the table. In this particular case, a Tragedy of the Commons problem is likely because:

Accepted Answer

Each of the given statements is true in this scenario. A Tragedy of the Commons problem occurs when individuals take advantage of shared resources, leading to depletion or degradation of the resource. In this case, the shared resource is the food on the table, and each person has an incentive to eat more than their fair share, as it will not affect their individual cost. Additionally, there is a consumption externality associated with the food, where each person's consumption affects the overall availability of food for the group. Finally, when one person eats, they may not consider how their choices affect the rest of the group, leading to imbalanced consumption.

Question 6

A good solution to saving the tiger from extinction would be to:

Accepted Answer

The answer of A good solution to saving the tiger...

Question 7

It is often important in cost-benefit analysis to distinguish between non-market values and direct values attached to direct use. Why is it important to include non-market values in an analysis?

Accepted Answer

Including non-market values in an analysis is important because it helps to reflect the costs and benefits to society as a whole, not just to private individuals. Direct use values only consider the benefits received by those directly using the resource, while non-market values can capture other values, such as the value of clean air or a healthy ecosystem, which may not have a direct market value. Therefore, non-market values provide a more comprehensive understanding of the costs and benefits associated with a decision.

Question 8

The private market would not supply the optimal amount of national defence because:

Accepted Answer

National defence is a public good and has non-excludable and non-rivalrous characteristics, meaning it cannot be effectively provided by the private market as no one can be excluded from its use and consumption by one person does not diminish its availability to others. Additionally, attaching a price to it and allowing individuals to profit from it goes against the idea of national duty and patriotism, and would undermine its effectiveness as a guarantee of safety and security for everyone.

Question 9

Many people around the world are worried about global warming, yet the consumption of oil-derived products is not falling. One possible solution to this problem could be:

Accepted Answer

Option A is potentially extreme and unrealistic, as oil is a vital resource for many industries and economies. Option B may not be effective if extracting less oil means reduced profits for oil-rig workers. While option C may be useful, it relies on the assumption that oil producers are willing to negotiate with environmental groups. Option D, however, allows companies to work together and share resources to reduce their collective carbon footprint, without sacrificing profits. This can be achieved through initiatives such as the creation of renewable energy divisions, investment in green technologies, and the adoption of sustainable practices. Therefore, option D is the best choice.

Question 10

If it is common knowledge that a given national park has become overused, why might raising the entrance fee to the park NOT solve the problem of overcrowding?

Accepted Answer

The answer of If it is common knowledge that a...

Question 11

Fire protection is a good example of a natural monopoly good because:

Accepted Answer

The answer of Fire protection is a good example of...

Question 12

In many countries in Africa, elephants roam freely. Each individual African elephant poacher has:

Accepted Answer

Poachers are motivated by the high value of elephant tusks (ivory) in the black market, leading them to kill as many elephants as they can to maximize their profit.

Question 13

It is sometimes possible for households to use their neighbours' wireless internet without permission. What type of problem is encountered in this situation and what might be done about it?

Accepted Answer

The answer of It is sometimes possible for households to...

Question 14

Markets may allocate natural resources wastefully if:

Accepted Answer

When property rights are not clearly defined or enforced, individuals may not have a clear incentive to use natural resources efficiently. This can lead to overuse, waste, and degradation of natural resources. Option A is a vague reference to human behavior and does not provide specific reasoning for wasteful allocation of natural resources. Option C implies the presence of poaching, which may not be the only factor contributing to wasteful resource allocation. Therefore, option B provides the best explanation for inefficient resource allocation in a market economy.

Question 15

Residents of Hang-Zhou, China, like seeing fireworks during their Chinese New Year celebration. Each of the city's one million residents places a value of $1 on the fireworks experience. The cost of providing the fireworks is $250 000. Which of the following statements is most correct?

Accepted Answer

Fireworks are a public good, characterized by being non-excludable and non-rivalrous. This means that once provided, it's not possible to exclude individuals from enjoying the fireworks, leading to a free-rider problem where individuals have an incentive to enjoy the benefit without contributing to its cost. Private markets struggle to provide public goods efficiently because they cannot ensure that everyone who benefits pays, resulting in underproduction of such goods.

Question 16

Suppose fish stocks in a lake are being overfished by fishers. To reduce the overfishing problem the government could:

Accepted Answer

By establishing a tradeable, property right entitlement to the fish, the government can limit the number of fish that can be caught, and those who hold the entitlements can benefit financially by selling them to other fishers. This incentivizes fishers to act in a sustainable manner and reduces the risk of overfishing. Paying to transport more fish to the lake or increasing the length of the fishing season may not address the root cause of the overfishing problem and could actually exacerbate it.

Question 17

A good that is not subject to property rights is often:

Accepted Answer

When a good is not subject to property rights, individuals can use it without paying for it or obtaining permission for its use. This often leads to it being overused and depleted without regard for its future availability or potential value.

Question 18

When a good is characterised by non-excludability, it is theoretically possible for the government to:

Accepted Answer

When a good is non-excludable, individuals cannot be effectively excluded from consuming the good, which can lead to free-riding and a market failure to provide enough of the good. In this case, the government can increase the wellbeing of residents by raising taxes to provide the good, which eliminates the problem of non-excludability. Additionally, by providing the good, the government can eliminate the free-rider problem that would exist in a private market. This would lead to the efficient outcome, which could not be achieved in a private market. Therefore, all of the above options are possible when a good is characterized by non-excludability.

Question 19

Cost-benefit analysis is important in determining the role of government in our economy because:

Accepted Answer

Cost-benefit analysis helps in identifying the possible gains to society from government provision of a particular good by comparing the costs incurred by the government with the benefits received by the society. This analysis helps in making informed decisions about the role of the government in the economy. Option A is incorrect because the government cannot provide all goods in which benefits exceed costs due to budget constraints. Option C is incorrect because markets for private goods are able to effectively assign costs and benefits in most cases. Option D is partly correct but does not cover the complete scope of cost-benefit analysis.

Question 20

Some workers are in occupations where the risk of death is higher than others. These risks can be used to evaluate the value of human life. You would expect these workers to:

Accepted Answer

Workers in high-risk occupations typically require higher rates of pay than workers in safer jobs using the same skills. This is because the higher pay compensates workers for taking on the additional risk of injury or death that comes with their job. Employers in these industries must offer higher pay to attract and retain skilled workers who are willing to take on the risks associated with their occupation.

Quiz 11: Public Goods and Common Resources