Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
|
|
| 1. | When
a good is excludable it means that a. | one person's use of the good diminishes another person's
ability to use it. | b. | people can be prevented from using the
good. | c. | no more than one person can use the good at the same
time. | d. | everyone will be excluded from obtaining the
good. | | |
|
|
| 2. | Private goods are both a. | excludable and nonrival. | b. | nonexcludable
and rival. | c. | excludable and rival. | d. | nonexcludable
and nonrival. | | |
|
|
| 3. | Which
of the following would be considered a private good? a. | national
defense | b. | a public beach | c. | local cable
television service | d. | a bottle of natural mineral water | | |
|
|
| 4. | What
characteristics do public goods and common resources have in common? a. | both goods are
nonexcludable | b. | both goods are excludable | c. | both goods are
rival | d. | both goods are nonrival | | |
|
|
| 5. | For
both public goods and common resources, an externality arises because a. | something of
value has no price attached to it. | b. | the goods are undervalued by society. | c. | the social
optimum level of output is lower than the market equilibrium's. | d. | All of the above
are correct. | | |
|
|
| 6. | National defense is provided by the government because a. | it is impossible
for private markets to produce public goods. | b. | products
provided by the government can be produced more efficiently. | c. | free-riders make
it difficult for private markets to supply the socially optimal quantity. | d. | if the good were
produced in private markets, most likely too much of the product would be
produced. | | |
|
|
| 7. | Market failure associated with the free-rider problem is a result of a. | a problem
associated with pollution. | b. | benefits that accrue to those who don't
pay. | c. | losses that
accrue to providers of the product. | d. | a project in which costs exceed
benefits. | | |
|
|
| 8. | The
government provides public goods because a. | private markets are incapable of producing public
goods. | b. | free-riders make it difficult for private markets to supply the
socially optimal quantity. | c. | markets are always better off with some government
oversight. | d. | external benefits will occur to private
producers. | | |
|
|
| 9. | A
lighthouse might be considered a private good if a. | there is a second lighthouse nearby, thus preventing a
monopoly. | b. | the owner of the lighthouse is able to exclude beneficiaries
from receiving the benefits of the lighthouse. | c. | ships are able
to enjoy the benefits of the lighthouse without paying for the benefit. | d. | a nearby port
authority is able to avoid paying any fees to the lighthouse owner. | | |
|
|
| 10. | Before considering any public project the government should a. | compare the
total cost and total benefits of the project. | b. | conduct a
cost-benefit analysis. | c. | allow citizens to determine which projects are most valuable to
them. | d. | All of the above are correct. | e. | Both a and b are
correct. | | |
|
|
| 11. | Studies show that the value of a human life is about a. | $1
million. | b. | $5 million. | c. | $10
million. | d. | $20 million. | | |
|
|
| 12. | When
the value of a human life is calculated according to the economic contribution a person makes to
society (as reflected in their income-earning potential) it is likely to lead to the bizarre
implication that a. | it is possible
for a retired or disabled person to have no value to society. | b. | economists are
more valuable than entrepreneurs. | c. | retired people who volunteer in their communities are more
valuable than physicians. | d. | all workers have equal value. | | |
|
|
| 13. | 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 for benefits to exceed
costs?
|
|
| 14. | Once
a common resource is available for consumption, policymakers need to be concerned
with a. | making sure
everyone gets a fair chance to consume. | b. | how much is consumed. | c. | creating laws
that will completely forbid consumption, because the environment is
priceless. | d. | None of the above are correct because common resources are
optimally provided in private markets. | | |
|
|
| 15. | Environmental degradation is NOT a. | a common resource problem. | b. | remedied through
Pigovian taxes. | c. | a form of market failure. | d. | always best
resolved by direct regulation. | | |
|
|
| 16. | Which
of the following statements is true of the tax on gasoline? a. | It does not
reduce traffic volume. | b. | It is the best solution to road congestion because it gives
private individuals an incentive to internalize the congestion externality. | c. | It discourages
driving on noncongested roads, even though there is no congestion externality for these
roads. | d. | It has little effect on driving
behavior. | | |
|
|
| 17. | The
U.S. government protects fish by a. | subsidizing the fishing industry. | b. | heavily taxing
competing industries. | c. | selling fishing licenses and regulating fish
lengths. | d. | All of the above are correct. | | |
|
|
| 18. | Why
is the commercial value of ivory a threat to the elephant, while the commercial value of beef is the
cow's guardian? a. | No other animal
has ivory tusks. | b. | Elephants are a common resource. | c. | Cows are a
common resource. | d. | Cows are a public good. | | |
|
|
| 19. | Four
friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an
item off the menu and they will share all dishes. When the final bill for the meal comes they decide
they will split the cost evenly among each of the people at the table. When the food is delivered to
the table, each person faces incentives similar to a. | consumption of a
common resource good. | b. | production of a public good. | c. | consumption of a
natural monopoly good. | d. | production of a private good. | | |
|
|
| 20. | One
of the most pressing concerns associated with implementation of road congestion pricing policies can
be resolved by a. | only charging
tolls to those users who earn above a certain income. | b. | allowing free
access to bicyclists and those who use fuel efficient cars. | c. | employing bar
code and debit card technologies to charge users. | d. | only charging
tolls to visitors. | | |
|
True/False
Indicate whether the sentence or statement is true
or false.
|
|
| 21. | In
the Tragedy of the Commons, joint action among the individual citizens would be necessary to solve
their common resource problem, if government did not intervene.
|
|
| 22. | Tolls
could not be used to alter people's incentives to drive during rush hour.
|
Short Answer
|
| | 23. | Given
the table, place each of the following in the correct location in the
table.
| | | Rival? | | | | Yes | No | Excludable? | Yes | Private
Goods | Natural Monopolies | No | Common Resources | Public
Goods | | | | |
a. | Congested toll roads | b. | Knowledge | c. | Fish in the ocean | d. | National defense | e. | Congested nontoll roads | f. | Cable TV | g. | The environment | h. | Fire protection | i. | Ice-cream cones | j. | Uncongested toll roads | k. | Clothing | l. | Uncongested nontoll roads | | |
|
| | 24. | The
government often intervenes when private markets fail to provide an optimal level of certain goods
and services. For example, the government imposes an excise tax on gasoline to account for the
negative externality that drivers impose on one another. Why might the private market not reach the
socially optimal level of traffic on the road without the help of government?
|
| | 25. | Why
do salmon populations face the threat of extinction while goldfish populations are in no such
danger?
|