Question 1

The marginal social cost of a common resource is _____ than an individual's marginal cost, and without government intervention the market will allow provision of _____ of the common resource than is socially optimal.

Accepted Answer

The marginal social cost of a common resource is greater than an individual's marginal cost because it includes external costs not considered by individuals. Without government intervention, the market will allow provision of more of the common resource than is socially optimal, leading to overuse and depletion.

Question 2

A Pigouvian tax can lead to the efficient level of production and consumption of:

Accepted Answer

Pigouvian tax is levied to correct market failure caused by negative externalities. A common resource, such as fish stocks or forests, can be overused because its cost to individual users is lower than its social cost. A Pigouvian tax can increase the private cost to users and reduce consumption to the socially optimal level, thereby leading to efficient production and consumption. Therefore, option B is correct. Option A is incorrect because a public good is non-excludable and non-rival, meaning that it is not subject to market failure due to excessive use. Option C is incorrect because artificially scarce goods are created by ownership restrictions, not negative externalities. Finally, option D is incorrect because Pigouvian taxes can reduce inefficiencies caused by market failure.

Question 3

Use the following to answer questions:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. When the government intervenes to correct for the external cost, the output will _____ from _____ to _____.

Accepted Answer

The answer of Use the following to answer questions:
Figure: Correcting...

Question 4

Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat and some diesel fuel can go offshore, lower a crab pot, and harvest king crab. As a result, this common resource is overused. Which of the following policy choices might produce the socially optimal king crab harvest?

Accepted Answer

Auctioning a limited number of licenses to harvest king crab would control the number of participants and help prevent overuse, leading to a more sustainable and socially optimal harvest.

Question 5

Use the following to answer questions:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. If the government forces the private-sector firms to face the external cost:

Accepted Answer

When the government forces firms to internalize an external cost, the supply curve shifts to the left, reflecting the higher costs of production.

Question 6

An individual will continue to use a common resource until his or her:

Accepted Answer

Marginal benefit is the additional benefit gained from consuming one more unit of a good or service. Marginal cost is the additional cost incurred from producing one more unit of a good or service. An individual will continue to use a common resource until the marginal benefit of doing so is zero. This is because at this point, the individual is no longer gaining any additional benefit from using the resource, so there is no reason to continue using it.

Question 7

The government can intervene to avoid overfishing by:

Accepted Answer

The government can use any combination of these methods to regulate fishing and prevent overfishing. Assigning property rights can create incentives for sustainable fishing, taxes can discourage excessive fishing, and tradable permits can limit total catch while allowing flexibility.

Question 8

Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can go offshore, lower a crab pot, and harvest king crab. This common resource will likely be _____ because the marginal social cost of harvesting crabs _____ the market price of crab.

Accepted Answer

The answer of Suppose the Alaskan king crab harvest is...

Question 9

If policy makers provide only enough tradable permits to provide efficient use of a common resource, only those who _____ will use the resource.

Accepted Answer

Those who gain the most will use the resource because they value it the most and are willing to pay the highest price for the permits. This ensures that the resource is used efficiently and that the benefits are maximized. Initially obtaining the permit, having the largest market share, or having monopoly power are not necessarily relevant factors in determining who will use the resource.

Question 10

Which of the following is an example of an artificially scarce good?

Accepted Answer

An artificially scarce good is excludable but non-rivalrous, like a pay-per-view boxing match, where access is restricted by payment, but one person's consumption doesn't reduce availability to others.

Question 11

If the market supply and demand curves for a common resource include all costs and benefits, the common resource will:

Accepted Answer

The socially optimal level of resource use is where the marginal social benefit equals the marginal social cost. When all costs and benefits are included in the market supply and demand curves, the market will reach this optimal level.

Question 12

Use the following to answer questions: Figure: Correcting for Market Failure -(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. Economists argue that in an unregulated private market, _____ is produced. In the figure, the supply curve (S₁) reflects _____ marginal cost.

Accepted Answer

In an unregulated private market with external costs, too much of the good is produced because the supply curve reflects only the private marginal cost, not the external costs.

Question 13

Whenever a species is threatened with extinction, it is likely that:

Accepted Answer

When no one has exclusive property rights to a species, it often leads to overexploitation and lack of conservation efforts, increasing the risk of extinction.

Question 14

Use the following to answer question:
Figure: Model of a Market for a Common Resource 
-(Figure: Model of a Market for a Common Resource) The figure Model of a Market for a Common Resource shows the intersection of the private supply and demand curves. Without any consideration of the marginal social cost of using a common resource, the quantity of the common resource used at Q will be:

Accepted Answer

Without considering the marginal social cost, the quantity used will be larger than socially desirable because individuals do not account for the external costs imposed on others, leading to overuse of the common resource.

Question 15

Computer software that you can download from the Internet for a price is an artificially scarce good because it is _____ but _____ in consumption.

Accepted Answer

Software that you must pay for to download is excludable because access can be restricted to paying customers. It is nonrival in consumption because one person's use does not diminish the ability of others to use it.

Question 16

The problem with common resources is similar to the problem with negative externalities because:

Accepted Answer

In the case of common resources, individuals may use the resource without paying for it, causing the marginal social cost to exceed the individual's marginal cost. This is similar to negative externalities, where the individual's marginal benefit exceeds the marginal social benefit, causing a negative impact on society as a whole. Therefore, choice C is the best answer as it correctly identifies that the marginal social cost of producing another unit exceeds the individual's marginal cost.

Question 17

In London, any motorist entering a particular area in the city center during certain specified times must pay a congestion fee equal to £8, with fines for noncompliance rising to as high as £120. The congestion fee is:

Accepted Answer

The congestion fee is both a Pigouvian tax, which is designed to regulate the use of a common resource (city streets), and an attempt to internalize the external costs associated with traffic delays and congestion.

Question 18

Use the following to answer questions:
Figure: Correcting for Market Failure 
-(Figure: Correcting for Market Failure) There is an external cost in the market illustrated in the figure Correcting for Market Failure. If the government intervenes to correct for the external cost, the new _____ will now reflect _____ costs.

Accepted Answer

When the government intervenes to correct for an external cost, the new supply curve (S2) will reflect both private and external costs, internalizing the externality.

Question 19

One way the government of Alaska could prevent an inefficiently large production of crab fishing would be to:

Accepted Answer

Selling exclusive licenses for the right to fish would limit the number of crab fishermen and ensure that those who do fish are efficient and experienced. This would prevent an inefficiently large production and maintain sustainable crab populations. The other options may not necessarily lead to efficient production and could potentially exacerbate the issue.

Question 20

The government can intervene to achieve the socially optimal quantity of a common resource by:

Accepted Answer

The government can use any combination of assigning property rights, imposing taxes, or granting tradable permits to regulate the use of common resources and achieve a socially optimal quantity.

Quiz 17: Public Goods Common Resources

The marginal social cost of a common resource is _ than an individual's marginal cost, and without government intervention the market will allow provision of _ of the common resource than is socially optimal.