Question 1

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

Accepted Answer

A television broadcast signal is a public good because it can be consumed by multiple individuals without any additional cost, and its consumption does not diminish its availability. While a rock concert may have some non-rivalry aspects, it is excludable because only those who pay for the ticket can attend. A laptop computer is a private good because it is both excludable and rivalrous. An economics textbook is a club good because it is excludable but non-rivalrous.

Question 2

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too

Accepted Answer

When external costs are present, the market fails to account for these costs, leading to overproduction and a lower price than would be efficient.

Question 3

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

The efficient price would be higher than $62 because external benefits are not reflected in the market price, leading to underproduction and an inefficiently low price.

Question 4

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

Accepted Answer

The answer of Consider two goods--one that generates external benefits...

Question 5

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

Accepted Answer

The grade received by the members of a particular group is a public good because it is non-excludable, meaning that each member cannot be excluded from receiving the grade, and it is also non-rival, meaning that one member's grade does not prevent another member from receiving the same grade.

Question 6

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

Accepted Answer

When external costs are present, the market price does not reflect the true cost to society. The efficient price would be higher to account for these external costs, leading to a reduction in output to reach the efficient equilibrium.

Question 7

A good that is both nonexcludable and nonrival-in-consumption is called a

Accepted Answer

The answer of A good that is both nonexcludable and...

Question 8

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

Accepted Answer

A public good is a good that is non-excludable and non-rivalrous in consumption, meaning that once the good is provided, it is impossible or very difficult to exclude someone from benefiting from it, and consuming the good does not reduce the amount available for others to consume. A joint good, on the other hand, is a good that is both rivalrous and non-excludable, meaning that it can be consumed by multiple individuals but consumption by one person reduces the amount available for others, and it is difficult or costly to exclude people from consuming it. An excludable good is one where it is possible and feasible to exclude nonpaying customers from accessing it. A national good does not have a clear definition, but may refer to a good that is important or beneficial for an entire nation, such as national defense or infrastructure.

Question 9

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Accepted Answer

The answer of Suppose the firms in the chemical industry...

Question 10

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Accepted Answer

When a good generates external costs or externalities, the market output will be higher than the efficient output because the private cost of producing the good is lower than the social cost. This leads to inefficient overproduction.

When a good generates external benefits, the market output will be lower than efficient output since the private benefit of producing the good is lower than the social benefit. This results in inefficient underproduction.

Therefore, for a good with external costs, the market will produce more than the efficient output, and for a good with external benefits, the market will produce less than the efficient output.

For the scenario provided in the question, it is given that there are two goods - one that generates external costs and another that generates external benefits. Hence, the market outcome will be lower than the efficient output for the good with external benefit and higher than the efficient output for the good with external cost. Thus, the correct choice is C.

Question 11

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

Accepted Answer

The answer of Compared to ideal economic efficiency, when the...

Question 12

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

Accepted Answer

National defense is the best example of a public good because it is non-excludable, meaning that it cannot be easily provided or withheld from individuals, and non-rivalrous, meaning that one person's consumption of national defense does not diminish its availability to others. Long distance telephone service, an amusement park, and the electric service of a public utility are all examples of private goods that are excludable and rivalrous.

Question 13

When the consumption of a good generates an external benefit,

Accepted Answer

When the consumption of a good generates an external benefit, the market demand curve will understate the total benefits derived from consumption of the good. This leads to too little of it being produced and consumed as producers only consider private benefits and consumers don't account for the external benefits they receive. Therefore, D is the correct choice.

Question 14

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

Accepted Answer

The answer of In a competitive market, if the production...

Question 15

When external benefits are present in a market,

Accepted Answer

External benefits lead to an underallocation of resources since suppliers do not take into account the benefits that accrue to others which results in a lower level of production than what is socially efficient.

Question 16

What are the two distinguishing characteristics of a public good?

Accepted Answer

The two distinguishing characteristic of a public good are nonrivalry in consumption, which means that one person's use of the good does not diminish its availability to others, and nonexcludability, which means that it is not possible to prevent someone from using or benefiting from the good even if they have not paid for it. The other options listed do not describe the defining characteristics of a public good.

Question 17

In a competitive market, if the production process involves an external benefit, the market will

Accepted Answer

When a production process involves an external benefit, there is a positive externality present. As the market only takes into account private costs and benefits, external benefits are not considered. As a result, the market will produce less than the socially efficient level, leading to a market price that is lower than the efficient one.

Question 18

When production of a good generates external benefits, the

Accepted Answer

When production of a good generates external benefits, the true social benefits from consumption of the good are greater than the private benefits received by consumers. This means that the demand curve for the good will understate the true social benefits from consumption of the good.

Question 19

When external costs are present in a market,

Accepted Answer

The answer of When external costs are present in a...

Question 20

A good is considered to be a public good if it

Accepted Answer

A public good is a good that is nonrival-in-consumption, meaning that one person's consumption of the good does not diminish the availability of the good for others, and nonexcludable, meaning that it is difficult or impossible to prevent someone from consuming the good. Public goods are typically provided by the government because it is difficult for private companies to profitably produce and distribute them.

Quiz 5: Difficult Cases for the Market, and the Role of Government

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

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will likely result in an output that is too

Suppose external benefits are present in a market which results in the actual market price of $62 and market output of 3,000 units. How does this outcome compare to the efficient, ideal equilibrium?

Consider two goods--one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium?

A good that is both nonexcludable and nonrival-in-consumption is called a

A good for which it is impossible or at least very costly to exclude nonpaying customers from receiving the good and for which many individuals can share in the consumption of the same unit of the good is called a

Suppose the firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers. How will the price and output of the chemical products in a competitive market compare with their values under conditions of ideal economic efficiency?

Consider two goods--one that generates external costs and another that generates external benefits. The actual market outcome would

Compared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too

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

When the consumption of a good generates an external benefit,

In a competitive market, if the production process involves an external cost, such as pollution of the environment, the market will

When external benefits are present in a market,

What are the two distinguishing characteristics of a public good?

In a competitive market, if the production process involves an external benefit, the market will

When production of a good generates external benefits, the

When external costs are present in a market,

A good is considered to be a public good if it