Question 1

A public good will:
A)be efficiently provided by the free market as long as its total benefits exceed its total costs.
B)be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs.
C)be provided in less than efficient quantities by the free market.
D)be provided in efficient quantities by voluntary contributions.
E)not be provided by the government.

Accepted Answer

Public goods are non-excludable and non-rival in consumption, which means that everyone can benefit from them without reducing their availability to others. Because of this, free-market incentives are insufficient to provide the optimal amount of public goods, as individuals have no incentive to pay for something that benefits everyone regardless of whether or not they contribute. As a result, public goods are often provided in less than efficient quantities by the free market, and are typically provided through government intervention or involuntary taxes.

Question 2

Externalities get their name from the fact that they are:
A) B and D.
B)unintended.
C)short-lived.
D)outside of decisions.
E) outside of marketplace.

Accepted Answer

The answer of Externalities get their name from the fact...

Question 3

Which of the following are not methods of dealing with externalities?
A)Relying on voluntary compliance.
B)Taxing the output of industries that pollute.
C)Creating legal environmental standards.
D)Increasing public spending on cleanup/reduction.

Accepted Answer

Relying on voluntary compliance is not a reliable method for dealing with externalities as it relies on the assumption that producers will act in the best interest of society, which may not always be the case. The other choices, taxing polluting industries, creating legal standards, and increasing public spending on cleanup/reduction, are all viable methods of addressing externalities by providing incentives or regulations to reduce negative effects on society.

Question 4

Public goods differ from private goods in that:
A)they produce negative externalities.
B)they are not scarce.
C)there is no way to prevent people from consuming them even if they did not pay for the goods.
D)their consumption must be regulated by the government.
E)their benefits are very narrow.

Accepted Answer

Public goods are non-excludable, meaning it's not feasible to prevent people from using them even if they haven't paid, unlike private goods.

Question 5

Voluntary recycling is available in many parts of the country.If citizens of these areas have collected recyclable material at home,they can bring it to a recycling centre.These materials reduce landfill space,reduce the need for virgin material extraction and provide an inexpensive input in many production processes.The information in this question suggests what about areas without voluntary recycling?
A)Externalities exist.
B)There is mandatory recycling.
C)Raw materials are less expensive.
D)The cost of production is higher.
E)Nothing.

Accepted Answer

The answer of Voluntary recycling is available in many parts...

Question 6

Which of the following is a property of a public good?
A)People who do not pay do not get access to a public good.
B)Only selected people can consume benefits.
C)Public good is provided by the market.
D)Users collectively consume benefits.

Accepted Answer

A public good is a good that can be consumed collectively by users, regardless of whether they pay for it or not. This is known as non-excludability. Therefore, choice A is incorrect. Choice B is also incorrect because a public good is available to all individuals, not just a select few. Choice C is incorrect because public goods are typically not provided by the market but rather by the government or other entities that can ensure their provision.

Question 7

Non-smoking sections in restaurants are designed to remove _____ from a market _____.
A)smoke; with food service
B)third parties; for food service
C)externalities; with public goods
D)third parties; externality
E)non-smokers; for food service

Accepted Answer

The purpose of non-smoking sections in restaurants is to remove third parties (non-smokers) from the negative externality (smoke) produced by smokers in the same establishment.

Question 8

If the free market is called upon to provide public goods,then:
A)there will more goods provided than is optimal.
B)there will be fewer goods provided than is optimal.
C)the market will provide the optimal number of goods.
D)the market price will be correct, but the optimal amount of output will not be produced.
E)the firms will earn excess profit.

Accepted Answer

Public goods are characterized by non-excludability and non-rivalry in consumption, meaning that it is difficult to prevent individuals from using them and one person's consumption does not diminish the amount available for others. In a free market, firms will only provide goods that can be sold at a profitable price, and as public goods cannot be sold to individuals for a profit (due to the non-excludability feature), firms will not have an incentive to produce them. Therefore, the market will likely provide fewer public goods than is optimal, resulting in a market failure.

Question 9

Which of the following is an example of a pure public good?
A)A bus.
B)A mall.
C)A teddy bear.
D)An army.
E)An automobile.

Accepted Answer

An army is a pure public good because it is non-excludable and non-rivalrous in consumption. It is non-excludable because it is impossible to exclude anyone from enjoying the benefits of national defense, regardless of whether or not they contribute to its provision. It is non-rivalrous because one person's enjoyment of national defense does not diminish the enjoyment of another person.

Question 10

Albert,Betty,Christine and David are all very good students.When they hold their study sessions,they often discuss very difficult concepts in great detail.Christine's roommate,Elizabeth,who takes completely different classes,still learns from the discussions of the others.This is the case of a/an _____,which _____ a _____.
A)public good; benefits; third party
B)externality; imposes a cost on; free rider
C)market failure; results from; third party
D)free rider; benefits from; third party
E)externality; benefits; third party

Accepted Answer

This situation describes a positive externality, where Elizabeth, a third party, benefits from the study sessions without being directly involved.

Question 11

Which of the following is the best example of a public good?
A)Apples.
B)Cars.
C)Education.
D)National defence.

Accepted Answer

National defence is a public good as it is non-excludable, meaning that it is not possible to exclude individuals from benefiting from national defence once it is provided. It is also non-rival, meaning that one person's consumption of national defence does not reduce the ability of others to consume it as well. This makes it impractical for the private sector to provide and the responsibility of the government.

Question 12

A public good may be defined as any good or service that:
A)must be provided only to certain groups.
B)must be distributed to all citizens in equal shares.
C)excludes free riders.
D)is not exclusive.

Accepted Answer

A public good is a good that is non-excludable, meaning that once it is provided, individuals cannot be excluded from consuming it. This is the characteristic that distinguishes public goods from private goods. Public goods are also non-rivalrous, meaning that one person's consumption of the good does not diminish the amount available for others.

Question 13

Which if the following is the best example of a public good?
A)Bread.
B)Fish in the ocean.
C)Scrambled satellite broadcasts.
D)National defence.

Accepted Answer

National defence is the best example of a public good, as it is a good that is non-rivalrous and non-excludable, meaning that everyone in a given area can benefit from it without reducing its availability or excluding others from using it. Bread is rivalrous, meaning that once it is eaten, there is less available for others to consume. Fish in the ocean is also rivalrous, as once a fish is caught, there is one less available for others to catch. Scrambled satellite broadcasts are not a good example of a public good, as they can be easily excluded from those who have not paid for access.

Question 14

There are apartments in Perth whose rooftops overlook Subiaco Oval.On game day you can find free riders on the roof enjoying _____.
A)beer
B)free property rights
C)an externality
D)a public good
E)excess utility

Accepted Answer

The situation described is an example of an externality, where the enjoyment of the game by others creates a positive or negative impact on the individuals on the rooftop. They are not paying for this view, but they are benefiting from it without contributing to its cost, which is being borne by the stadium and game attendees. The other options, such as beer or free property rights, are not relevant or sufficient to explain the situation. The concept of excess utility is not applicable here, as it relates to the satisfaction or usefulness of a good or service beyond its expected value, which is not the case for the rooftop view.

Question 15

Which of the following is not a characteristic of a public good?
A)It is scarce.
B)It is not diminished in amount as additional people consume the product.
C)Its benefits cannot be withheld from anyone.
D)It is free.
E)It yields widespread benefits.

Accepted Answer

A public good is non-exclusive, meaning that individuals cannot be excluded from enjoying the benefits of the good. However, this does not mean that the good is necessarily free. Public goods can still have costs associated with their production and distribution, which can be financed through taxes, fees, or other means.

Question 16

Much of the nation's coal is extracted by strip mining.This process leaves a huge barren hole in the ground when complete and the cost of replanting the trees is approximately $10 per ton of coal.Burning the coal for electricity causes air pollution.No one knows how much damage the air pollution causes,but we know that for another $10 per ton the power plant can be outfitted with a pollution-control device.What is one measure of the true social cost of coal-fired electricity,in dollars per ton?
A)Private marginal cost plus the $10 replanting charge.
B)Private marginal cost plus the $10 emission control charge.
C)Only the $20 of replanting and emission control charges, because the other costs are private, not social.
D)Private marginal cost plus the $20 of replanting and emission control charges.
E)In order to answer this question we need to know the dollar value of the pollution.

Accepted Answer

The true social cost of coal-fired electricity should include both the private marginal cost (which includes the cost of extracting the coal) and the external costs of pollution and environmental degradation. Therefore, the correct choice is D, which includes both the $10 replanting charge and the $10 pollution-control device charge on top of the private marginal cost.

Question 17

Noise pollution is a problem because:
A)it creates an external cost to others.
B)it is damaging to those who turn the music on too high.
C)it is very enjoyable to those who like it.
D)it cannot be quantified.

Accepted Answer

Noise pollution creates an external cost to others because it can cause physical and psychological harm and interfere with communication and productivity. It can also decrease property values and disrupt wildlife habitats. Therefore, it is a problem that affects not only the person creating the noise but also their neighbors and the environment.

Question 18

If each of us relied exclusively on the market to determine what to buy,we would probably end up with few,if any:
A)cars.
B)bananas.
C)national parks.
D)computers.
E)t-shirts.

Accepted Answer

National parks are a type of public good, and the market is not well-equipped to provide public goods. Public goods are non-excludable and non-rivalrous, which means that once they are provided, everyone can enjoy them without diminishing their availability. Since it is difficult to charge people individually for the use of public goods, the market may not produce enough of them. Therefore, relying exclusively on the market to determine what to buy may lead to under-provision of public goods like national parks.

Question 19

In 2002 a community in the United States passed a beautification ordinance (law)prohibiting the placement of indoor furniture outside of homes (e.g.,no couches on the porch).The law represents a conflict between _____ and _____.
A)the rich; the poor
B)third parties; market participants
C)victims; criminals
D)public goods; private goods
E)residents; visitors

Accepted Answer

The law represents a conflict between third parties (the community or government enforcing the ordinance for aesthetic reasons) and market participants (homeowners who wish to use their property as they see fit).

Question 20

One of the ways to deal with external cost is:
A)to rely on a good behaviour.
B)to invest in technological development.
C)to penalise those who bear the external cost.
D)to include the external cost in market price.

Accepted Answer

Including the external cost in the market price is the best choice as it aligns the private cost with the social cost and reflects the true cost of production. This can be done through various policy instruments such as taxes, subsidies or cap and trade systems. Penalising those who bear the external cost may not always be effective and relying on good behaviour is not a reliable solution. While investing in technological development can help reduce external costs, it may not address the root cause of the problem unless it leads to a significant reduction in emissions or pollution.

Quiz 4: Markets in action

A public good will:

Externalities get their name from the fact that they are:

Which of the following are not methods of dealing with externalities?

Public goods differ from private goods in that:

Which of the following is a property of a public good?

Non-smoking sections in restaurants are designed to remove _ from a market _.

If the free market is called upon to provide public goods,then:

Which of the following is an example of a pure public good?

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

A public good may be defined as any good or service that:

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

There are apartments in Perth whose rooftops overlook Subiaco Oval.On game day you can find free riders on the roof enjoying _____.

Which of the following is not a characteristic of a public good?

Noise pollution is a problem because:

If each of us relied exclusively on the market to determine what to buy,we would probably end up with few,if any:

In 2002 a community in the United States passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (e.g.,no couches on the porch) .The law represents a conflict between _ and _.

One of the ways to deal with external cost is: