Question 1

To decide whether a public good should be provided, the government needs to know: (i) what the costs to society of providing the good are
(ii) what the benefits to society of providing the good are
(iii) what price people pay for the good in an actual market
A) (i) and (ii)
B) (i) and (iii)
C) (i) only
D) (i), (ii) and (iii)

Accepted Answer

The answer of To decide whether a public good should...

Question 2

Why is cost-benefit analysis such a difficult job? (i) there is no price with which to judge the value of a public good
(ii) surveys are often biased and unreliable
(iii) it is difficult to identify all factors that influence costs and benefits of public goods
A) (i) and (ii)
B) (ii) and (iii)
C) (ii) only
D) (i), (ii) and (iii)

Accepted Answer

All three options listed in the question contribute to the difficulty of conducting a cost-benefit analysis for public goods. Without a clear price to determine the value of a public good, it becomes difficult to determine the costs and benefits associated with it. Surveys are often flawed or biased, making it difficult to obtain accurate data on the preferences of individuals in terms of the good. Furthermore, it can be difficult to identify all the factors that contribute to the costs and benefits associated with a public good, particularly as some costs might be indirect or long-term, making it difficult to measure accurately.

Question 3

Which of the following statements is true of cost-benefit analysis? (i) analysts are not able to observe price signals
(ii) costs are explicit and quantified quite easily
(iii) benefits are rough approximations
A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i), (ii) and (iii)

Accepted Answer

Analysts often cannot observe price signals directly, and benefits are typically rough approximations due to their subjective nature and difficulty in quantification.

Question 4

When an infinite value is placed on human life which of the following represents policymakers who rely on cost-benefit analysis? (i) they are forced to pursue any project in which a single human life is saved
(ii) they are likely to make decisions that optimally allocate society's scarce resources
(iii) they are left with nonsensical results
A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i), (ii) and (iii)

Accepted Answer

Placing an infinite value on human life in cost-benefit analysis leads to the pursuit of any project that saves a life, regardless of cost, and results in nonsensical outcomes because it ignores the reality of limited resources.

Question 5

Private markets usually fail to provide lighthouses because:
A) lighthouses cost too much to build, relative to their benefits
B) government intervention makes it hard for private lighthouse owners to compete in the market
C) ship captains have incentives to use lighthouses without paying
D) lighthouses are valued very little by ship captains these days

Accepted Answer

Ship captains have incentives to use lighthouses without paying, as lighthouses provide a public good that is non-excludable and non-rivalrous. This means that once a lighthouse is built, it is difficult to prevent anyone from using it and one ship's use of the lighthouse does not diminish the benefits available to other ships. As a result, there is little incentive for private individuals or firms to invest in building lighthouses, as they cannot easily charge for their use.

Question 6

Anti-poverty campaigns to reduce poverty are considered by their advocates to be:
A) a public good
B) necessary as private charity can't solve the problem
C) a policy that makes everyone better off
D) all of the above

Accepted Answer

Anti-poverty campaigns are considered a public good because they benefit society as a whole, not just individuals. Private charity also cannot solve the problem of poverty on its own, making government intervention necessary. By reducing poverty, everyone in society becomes better off because poverty can lead to negative economic and social consequences for individuals and wider society. Therefore, all options (A, B, and C) are correct.

Question 7

Suppose that policymakers are doing a cost-benefit analysis on a proposal to add traffic barriers to a motorway. These barriers will reduce the number of fatal accidents on this motorway. Which of the following statements is true?
A) the benefits will always exceed the cost because reducing the risk of accidents is so valuable
B) people will exaggerate the benefits of traffic barriers in a questionnaire on their values
C) it is not possible to put a dollar value on someone's life
D) the benefits will never exceed the cost, because people show they don't care about accident risks by buying unsafe cars

Accepted Answer

The answer of Suppose that policymakers are doing a cost-benefit...

Question 8

As with many public goods, determining the appropriate level of government support for the production of general knowledge is difficult because:
A) members of parliament are often experts in the sciences
B) patents correct an unknown portion of the externality
C) benefits are hard to measure
D) all of the above are true

Accepted Answer

Benefits of general knowledge are often difficult to measure, making it challenging to determine the appropriate level of government support. Option A is incorrect because the expertise of members of parliament in the sciences is not directly relevant to the difficulty in determining government support for general knowledge. Option B is incorrect because patents address the issue of externalities related to intellectual property rights, which is different from the issue of determining government support for general knowledge.

Question 9

Assuming that everyone prefers to live in a society without poverty, which of the following statements are true of private anti-poverty programs? (i) people who don't contribute still receive benefits from the general reduction in poverty
(ii) the socially optimal level of charitable donations is greater than those actually received, because of the free-rider problem
(iii) there is no individual incentive to contribute to private anti-poverty programs since the government is the sole supplier
A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (i), (ii) and (iii)

Accepted Answer

(i) is true because non-contributors can still benefit from the overall reduction in poverty due to the positive externalities of such programs. (ii) is true because of the free-rider problem, where individuals may under-contribute to a public good (like anti-poverty programs) since they can benefit without paying. (iii) is false because private anti-poverty programs exist alongside government efforts, meaning individuals do have an incentive to contribute to these private initiatives.

Question 10

In deciding whether something is a public good, which of the following must one determine? (i) the number of beneficiaries
(ii) the value of external benefits which accrue to resource owners
(iii) the excludability of the beneficiaries
A) (i) and (ii)
B) (i) and (iii)
C) (ii) and (iii)
D) (i), (ii) and (iii)

Accepted Answer

To determine whether something is a public good, one must consider the number of beneficiaries (i) to assess whether it is non-excludable, and the excludability of beneficiaries (iii), which is a defining characteristic of a public good. The value of external benefits which accrue to resource owners (ii) is not a factor in determining whether something is a public good, though it may be relevant in assessing its overall desirability.

Question 11

Jack decides to build a lighthouse close to a nearby port. If he turns the light off, ships avoid that port. Which statement is true?
A) the port owner can free-ride on the service provided by Jack
B) the lighthouse Jack has built is more like a private good
C) the service that Jack provides is non-excludable
D) all of the above statements are true

Accepted Answer

The fact that ships avoid the port when the lighthouse is turned off implies that the service is rivalrous, as the presence of one ship using the port reduces the availability of the port for another ship. Therefore, the lighthouse is more like a private good that is excludable and rivalrous. The port owner cannot free-ride on the service provided by Jack, as the benefits of the lighthouse accrue only to those who use the port and are willing to pay for access to it. The service of the lighthouse is also excludable, as the port owner can deny access to those unwilling to pay for access.

Question 12

Because of the free-rider problem, respondents to cost-benefit surveys:
A) are unable to evaluate the effect of the project on their personal satisfaction.
B) are typically not benefited directly by government projects
C) have a difficult time identifying explicit costs
D) have little incentive to tell the truth

Accepted Answer

The free-rider problem occurs when individuals benefit from resources or services without paying for them, which can lead to underreporting of their true valuation in surveys, as they might hope to benefit without contributing to the cost.

Question 13

A town engineer comes to the town council with a proposal to build a traffic light at a certain intersection that currently has a stop sign. The benefit of the traffic light is increased safety. In fact, the traffic light will reduce the incidence of fatal traffic accidents by 50 per cent per year. Which of the following statements is true?
A) the project should definitely be accepted
B) the full cost of the stop light will be relatively small since it only includes the purchase and installation costs
C) the decision to install the light is likely to require a complex evaluation of the trade-off between the worth of human life and the lost time waiting for the light to change signals
D) the cost will invariably outweigh the benefit

Accepted Answer

The decision to install a traffic light involves evaluating the trade-off between the value of human lives saved and the costs, including the potential increase in waiting time at the light, making it a complex decision.

Question 14

A lighthouse is typically considered a good example of a public good because:
A) the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse
B) there is rarely another lighthouse nearby to provide competition
C) a nearby port authority cannot avoid paying fees to the lighthouse owner
D) all passing ships are able to enjoy the benefits of the lighthouse without paying

Accepted Answer

A public good is something that is non-excludable (meaning that people cannot be easily prevented from benefitting from it) and non-rivalrous (meaning that one person's use of it does not diminish its availability to others). A lighthouse fits this definition because once it is built and maintained, all passing ships can benefit from its light without their use of it diminishing its availability to other ships, and it is difficult to exclude ships from using it. Even if a passing ship does not pay fees to the lighthouse owner, their use of the light does not prevent other ships from also being able to use it.

Question 15

Which of the following statements is true?
A) no single individual can eliminate poverty because the problem is so large
B) private charities use taxes to escape the free-rider problem
C) there would be no poverty problem if it was left up to private charity
D) everyone agrees on what role the government should play in fighting poverty

Accepted Answer

Poverty is a complex and systemic problem that cannot be solved by any one individual alone. It requires collective action and systemic change, which often involves government intervention.

Question 16

A lighthouse might be considered a private good if:
A) lighthouses were provided by private charities
B) the government taxes ship owners to provide them the lighthouses they need
C) the owner of the lighthouse refuses to be subsidised by the government
D) the owner of the lighthouse can charge nearby port authorities a fee for the lighthouse service

Accepted Answer

A private good is a good or service that can be directly controlled and exclusive to the person who pays for it. In this case, if the owner of the lighthouse can charge nearby port authorities a fee for the use of the lighthouse, then it is a private good as it is exclusive to those who pay for it. The other options involve government intervention or charitable donations, which suggest that it is not directly controlled by those who use it and therefore not a private good.

Question 17

Government agencies subsidise basic research because:
A) the private market devotes too few resources to basic research
B) the general knowledge developed through basic research can be used without charge
C) the social benefit of additional knowledge is perceived to be greater than the cost of subsidies
D) all of the above are true

Accepted Answer

All of the above reasons are true. The private market may not dedicate enough resources to basic research as it may not see a direct financial benefit. Basic research often leads to general knowledge that can be used without charge, benefiting society as a whole. Additionally, the social benefits of additional knowledge gained through basic research are often seen as greater than the cost of government subsidies.

Question 18

Which of the following suggests that individuals do not place an infinite value on human life?
A) road intersections without stop signs
B) cars that are manufactured and purchased without the latest safety features
C) skydiving
D) all of the above

Accepted Answer

Each of the options listed suggests that individuals are willing to take risks with their own lives or the lives of others, indicating that they do not place an infinite value on human life. Road intersections without stop signs may be seen as an inconvenience, but some drivers may be willing to risk accidents by proceeding without coming to a complete stop. Cars without the latest safety features may be cheaper or more desirable for other reasons, despite the increased risk of injury or death in a crash. Similarly, skydiving is an activity that many people engage in despite its inherent risks.

Question 19

If everyone prefers a society without poverty, then which of the following statements is true:
A) taxing private charities will make everyone better off
B) taxing the wealthy to increase living standards for the poor only makes the poor better off
C) taxing the wealthy to increase living standards for the poor makes everyone better off
D) taxing the wealthy to increase living standards for the poor only makes the rich worse off

Accepted Answer

If everyone prefers a society without poverty, then increasing the living standards for the poor through taxation of the wealthy would lead to a more equal society and reduce poverty levels for those in need. This would also have positive effects on the overall economy, reducing crime rates, improving health outcomes, and increasing social cohesion. Therefore, taxing the wealthy to increase living standards for the poor makes everyone better off. This does not necessarily mean taxing private charities or making the rich worse off.

Question 20

The Australian patent system:
A) makes both general and technical knowledge excludable
B) makes only technical knowledge excludable
C) creates a disincentive to invent
D) does all of the above

Accepted Answer

The Australian patent system only makes technical knowledge excludable, not general knowledge. It is intended to provide an incentive for individuals to invent and innovate.

Quiz 11: Public Goods and Common Resources

To decide whether a public good should be provided, the government needs to know: (i) what the costs to society of providing the good are (ii) what the benefits to society of providing the good are (iii) what price people pay for the good in an actual market

Why is cost-benefit analysis such a difficult job? (i) there is no price with which to judge the value of a public good (ii) surveys are often biased and unreliable (iii) it is difficult to identify all factors that influence costs and benefits of public goods

Which of the following statements is true of cost-benefit analysis? (i) analysts are not able to observe price signals (ii) costs are explicit and quantified quite easily (iii) benefits are rough approximations

Private markets usually fail to provide lighthouses because:

Anti-poverty campaigns to reduce poverty are considered by their advocates to be:

Suppose that policymakers are doing a cost-benefit analysis on a proposal to add traffic barriers to a motorway. These barriers will reduce the number of fatal accidents on this motorway. Which of the following statements is true?

As with many public goods, determining the appropriate level of government support for the production of general knowledge is difficult because:

In deciding whether something is a public good, which of the following must one determine? (i) the number of beneficiaries (ii) the value of external benefits which accrue to resource owners (iii) the excludability of the beneficiaries

Jack decides to build a lighthouse close to a nearby port. If he turns the light off, ships avoid that port. Which statement is true?

Because of the free-rider problem, respondents to cost-benefit surveys:

A lighthouse is typically considered a good example of a public good because:

Which of the following statements is true?

A lighthouse might be considered a private good if:

Government agencies subsidise basic research because:

Which of the following suggests that individuals do not place an infinite value on human life?

If everyone prefers a society without poverty, then which of the following statements is true:

The Australian patent system: