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Mankiw TB - Ch11

The document discusses different types of goods including public goods, common resources, and private goods. It examines the characteristics of excludability and rivalry as they relate to different goods. Market failures can occur for goods that are non-excludable and non-rival like public goods and common resources.

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124 views66 pages

Mankiw TB - Ch11

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Chapter 11 Public Goods and Common Resources

MULTIPLE CHOICE

1. For private goods allocated in markets,

a. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation
of resources.
b. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient
allocation of resources.
c. the government guides the decisions of buyers and sellers and these decisions lead to an efficient
allocation of resources.
d. the government guides the decisions of buyers and sellers and these decisions lead to an
inefficient allocation of resources.
ANS: A PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods MSC: Interpretive

2. Government policy can potentially raise economic well-being

a. in all markets for goods and services.
b. in economic models, but not in reality.
c. when a good does not have a price attached to it.
d. never.
ANS: C PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Interpretive

3. The old lyric “the best things in life are free”

a. is not true for any goods.
b. is even true for some goods that have a price.
c. refers to goods provided by nature or the government.
d. refers to goods provided by the market.
ANS: C PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Interpretive

4. Governments can improve market outcomes for

a. public goods but not common resources.
b. common resources but not public goods.
c. both public goods and common resources.
d. neither public goods nor common resources.
ANS: C PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Common resources MSC: Interpretive

5. For most goods in an economy, the signal that guides the decisions of buyers and sellers is
a. preference.
b. government intervention.
c. quantity.
d. price.
ANS: D PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods MSC: Applicative

1
© 2015 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
2 ❖ Chapter 11/Public Goods and Common Resources

6. When goods do not have a price, which of the following primarily ensures that the good is produced?
a. buyers
b. sellers
c. government
d. the market
ANS: C PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative
THE DIFFERENT KINDS OF GOODS

1. The provision of a public good generates a

a. positive externality, as does the use of a common resource.
b. positive externality and the use of a common resource generates a negative externality.
c. negative externality, as does the use of a common resource.
d. negative externality and the use of a common resource generates a positive externality.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Common resources MSC: Interpretive

2. The idea that “externalities arise because something of value has no price attached to it” is associated
with
a. public goods, but not with common resources.
b. common resources, but not with public goods.
c. both public goods and common resources.
d. neither public goods nor common resources.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities | Public goods | Common resources MSC: Interpretive

3. The provision of public goods gives rise to

a. no externalities.
b. positive externalities.
c. negative externalities.
d. rivalries in consumption.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities | Public goods MSC: Interpretive

4. The provision of public goods gives rise to

a. positive externalities, as does the use of common resources.
b. positive externalities, whereas the use of common resources gives rise to negative externalities.
c. negative externalities, whereas the use of common resources gives rise to positive externalities.
d. negative externalities, as does the use of common resources.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities | Public goods | Common resources MSC: Interpretive

5. Private decisions about consumption of common resources and production of public goods usually
lead to an
a. efficient allocation of resources and external effects.
b. efficient allocation of resources and no external effects.
c. inefficient allocation of resources and external effects.
d. inefficient allocation of resources and no external effects.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Common resources MSC: Interpretive

© 2015 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from
the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 11/Public Goods and Common Resources ❖ 3

6. When a good is excludable,

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 using the good.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Definitional

7. A good is excludable if
a. one person's use of the good diminishes another person's enjoyment of it.
b. the government can regulate its availability.
c. it is not a normal good.
d. people can be prevented from using it.
ANS: D PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Definitional

8. Excludability is the property of a good whereby

a. one person's use diminishes other peoples’ use.
b. a person can be prevented from using it.
c. a good is private, not public.
d. a good is public, not private.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Definitional

9. If people can be prevented from using a certain good, then that good is called
a. rival in consumption.
b. excludable.
c. a common resource.
d. a public good.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Definitional

10. Goods that are excludable include both

a. club goods and public goods.
b. public goods and common resources.
c. common resources and private goods.
d. private goods and club goods.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Applicative

11. Goods that are not excludable include both

a. private goods and public goods.
b. club goods and common resources.
c. common resources and public goods.
d. private goods and club goods.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Applicative

12. Both public goods and common resources are

a. rival in consumption.
b. nonrival in consumption.
c. excludable.
d. nonexcludable.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Applicative

13. Both private goods and club goods are

a. rival in consumption.
b. nonrival in consumption.
c. excludable.
d. nonexcludable.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Applicative

14. Goods that are not excludable are usually

a. higher priced than excludable goods.
b. higher priced than rival goods.
c. in short supply.
d. free of charge.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Interpretive

15. When something of value has no price attached to it,

a. externalities will be present.
b. production of the product has no cost.
c. government should not intervene to produce the product.
d. private companies will eventually produce the product, and the good will no longer be free.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Interpretive

16. A view of a spectacular sunset along a private beach is an example of a

a. private good.
b. public good.
c. nonrival but excludable good.
d. rival but nonexcludable good.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability | Rivalry in consumption MSC: Applicative

17. Reggie owns 3 acres of beautiful wooded land. When Reggie decides to move to be closer to his
grandchildren, he donates the land to the state with the understanding that the land will be used as a
state park. This state park is large enough that it is not congested. It is an example of a good that is
a. both rival in consumption and excludable.
b. neither rival in consumption nor excludable.
c. nonrival in consumption and excludable.
d. rival in consumption and nonexcludable.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability | Rivalry in consumption MSC: Applicative

18. When a good is rival in consumption,

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. an unlimited number of people can use the good at the same time.
d. everyone will be excluded from obtaining the good.
ANS: A PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Rivalry in consumption MSC: Definitional

19. If one person's use of a good diminishes another person's enjoyment of it, the good is
a. rival in consumption.
b. excludable.
c. normal.
d. exhaustible.
ANS: A PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Rivalry in consumption MSC: Definitional

20. Goods that are rival in consumption include both

a. club goods and public goods.
b. public goods and common resources.
c. common resources and private goods.
d. private goods and club goods.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

21. Goods that are not rival in consumption include both

a. private goods and common resources.
b. club goods and public goods.
c. common resources and public goods.
d. private goods and club goods.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

22. An FM radio signal is an example of a good that is

a. private.
b. nonrival in consumption.
c. social.
d. nonexcludable in production.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

23. Goods that are rival in consumption but not excludable would be considered
a. club goods.
b. common resources.
c. public goods.
d. private goods.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

24. Goods that are rival in consumption and excludable would be considered
a. club goods.
b. common resources.
c. public goods.
d. private goods.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

25. Some goods can be either common resources or public goods depending on
a. whether the good is rival in consumption.
b. whether the good is excludable.
c. the marginal cost of the good.
d. None of the above is correct.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Rivalry in consumption MSC: Interpretive

26. If a road is congested, then use of that road by an additional person would lead to a
a. negative externality.
b. positive externality.
c. Pigovian externality.
d. free-rider problem with rush hour drivers stuck in traffic.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Rivalry in consumption MSC: Applicative

27. Which of the following would not be considered a private good?

a. a sweater
b. a slice of pizza
c. a Toyota Prius
d. cable TV service
ANS: D PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

28. 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
ANS: D PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

29. Most goods in the economy are

a. club goods.
b. common resources.
c. public goods.
d. private goods.
ANS: D PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

30. An example of a private good would be

a. a local fire department.
b. a pair of pants.
c. a streetlight.
d. a national park.
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Applicative

31. The value and cost of goods are easiest to determine when the goods are
a. private goods.
b. public goods.
c. common resources.
d. club goods.
ANS: A PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Applicative

32. Private goods are both

a. excludable and nonrival in consumption.
b. nonexcludable and rival in consumption.
c. excludable and rival in consumption.
d. nonexcludable and nonrival consumption.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Applicative

33. Which of the following goods is rival and excludable?

a. an uncongested toll road
b. an uncongested nontoll road
c. a congested nontoll road
d. a congested toll road
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

34. Which of the following goods is rival in consumption and excludable?

a. a can of Coca-Cola
b. cable TV service
c. a fireworks display
d. the environment
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

35. Which of the following goods is rival in consumption and excludable?

a. a tornado siren
b. an uncongested toll road
c. a home
d. the environment
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

36. Which of the following goods is nonrival in consumption and excludable?

a. a tornado siren
b. an uncongested toll road
c. a home
d. the environment
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

37. Which of the following goods is both excludable and rival in consumption?
a. a wristwatch
b. fire protection in a small town
c. fish in the ocean
d. efforts to fight poverty
ANS: A PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry MSC: Definitional

38. Which of the following goods is excludable but not rival in consumption?
a. a congested toll road
b. fire protection in a small town
c. a tornado siren
d. whales in the ocean
ANS: B PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry MSC: Definitional

39. Under which of the following scenarios would a park be considered a common resource?
a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic
tables.
b. Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

40. Under which of the following scenarios would a park be considered a public good?
a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic
tables.
b. Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

41. Under which of the following scenarios would a park be considered a club good?
a. Visitors to the park must pay an admittance fee, but there are always plenty of empty picnic
tables.
b. Vistors to the park must pay an admittance fee and frequently all of the picnic tables are in use.
c. Visitors can enter the park free of charge and there are always plenty of empty picnic tables.
d. Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Club goods MSC: Applicative

42. A vacation home in Malibu is

a. not rival in consumption and excludable.
b. rival in consumption and excludable.
c. not rival in consumption and not excludable.
d. rival in consumption and not excludable.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

43. An AM radio transmission of a baseball game is

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Applicative

44. A pizza is
a. excludable and rival in consumption.
b. excludable and nonrival in consumption.
c. nonexcludable and rival in consumption.
d. nonexcludable and nonrival in consumption.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

45. A local park filled with picnickers is

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Applicative

46. A cable television broadcast of a movie is

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Applicative

47. A congested side street in your neighborhood is

a. excludable and rival in consumption.
b. excludable and not rival in consumption.
c. not excludable and rival in consumption.
d. not excludable and not rival in consumption.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

48. Pay-per-view broadcasts are

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: B PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Club goods MSC: Applicative

49. The Great Lakes are

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

50. A streetlight is a
a. private good.
b. club good.
c. common resource.
d. public good.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

51. Labor is a
a. private good.
b. club good.
c. common resource.
d. public good.
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods MSC: Applicative

52. At the local park there is a playground for children to use. While anyone is allowed to use the play-
ground, it is often very busy, reducing the enjoyment of many of the children who use it. The play-
ground is a
a. private good.
b. club good.
c. common resource.
d. public good.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Interpretive

53. At the local park there is a playground that anyone may use. There is rarely anyone using the play-
ground, so children who use the playground receive full enjoyment from its use. The playground is
a. rival in consumption and is excludable.
b. not rival in consumption, but is excludable.
c. rival in consumption, but is not excludable.
d. not rival in consumption nor is it excludable.
ANS: D PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Interpretive

54. The Mansfield Public Library has a large number of books that anyone with a library card may bor-
row. Anyone can obtain a card for free. Because the number of copies of each book is limited, not
everyone can have the same book at the same time. What type of good would the library books be
classified as in this case?
a. private goods
b. club goods
c. common resources
d. public goods
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Interpretive

55. The Pennsylvania Turnpike is a tolled freeway running through the state of Pennsylvania. Motorists
must pay tolls at various points along the Turnpike based on the distance they traveled on the freeway.
Suppose that despite the tolls, many motorists in the urban areas use the Turnpike causing traffic to
slow during peak times. What type of good would the Turnpike be classified as in this case?
a. private good
b. club good
c. common resource
d. public good
ANS: A PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Club goods MSC: Interpretive

56. Consider a public road that anyone is allowed to drive on. If the road is often congested, the road
would be considered a
a. private good.
b. club good.
c. common resource.
d. public good.
ANS: C PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Interpretive
PUBLIC GOODS

1. Because public goods are

a. excludable, people have an incentive to be free riders.
b. excludable, people do not have an incentive to be free riders.
c. not excludable, people have an incentive to be free riders.
d. not excludable, people do not have an incentive to be free riders.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods | Free riders MSC: Interpretive

2. Which of the following is not a public good?

a. national defense
b. patented technological knowledge
c. general knowledge
d. the elimination of poverty
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

3. Without government intervention, public goods tend to be

a. overproduced and common resources tend to be overconsumed.
b. overproduced and common resources tend to be underconsumed.
c. underproduced and common resources tend to be overconsumed.
d. underproduced and common resources tend to be underconsumed.
ANS: C PTS: 1 DIF: 2 REF: 11-2 | 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Common resources MSC: Interpretive

4. The U.S. military defends Jacob from foreign attackers. The fact that Jacob enjoys this protection
does not detract from others Americans’ enjoyment of it. For this reason, we say that national de-
fense is
a. excludable.
b. not excludable.
c. rival in consumption.
d. not rival in consumption.
ANS: D PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Rivalry MSC: Interpretive

5. A sidewalk runs across Milton’s front yard near the street. By law, anyone has the right to use the
sidewalk. When Milton shovels the sidewalk after a heavy snow, he is providing a
a. good that is rival in consumption.
b. private good.
c. public good.
d. common resource.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

6. A free rider is a person who

a. will only purchase a product on sale.
b. receives the benefit of a good but avoids paying for it.
c. can produce a good at no cost.
d. rides public transit regularly.
ANS: B PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Definitional

7. The free-rider problem exists with

a. apples.
b. knowledge.
c. cable TV service.
d. congested toll roads.
ANS: B PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

8. A free-rider problem exists for any good that is not

a. rival in consumption.
b. a private good.
c. free.
d. excludable.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

9. Consider a good for which the number of people who benefit from the good is large and the exclusion
of any one those people is impossible. In this case, the market for this good will likely
a. be provided by a private firm rather than the government.
b. have a free-rider problem.
c. not exist.
d. be limited to a small number of units of production.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Free riders MSC: Interpretive

10. Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co.
are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not
a union member and he does not have to pay union dues, Pete receives all the benefits that the union
has negotiated. Pete’s behavior is an example of
a. rivalry.
b. a barrier to entry.
c. free riding.
d. Taft-Hartley opposition.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

11. Because of the free-rider problem,

a. private markets tend to undersupply public goods.
b. the federal government spends too many resources on national defense and not enough resources
on medical research.
c. fireworks displays have become increasingly dangerous.
d. poverty has increased.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

12. Who among the following is a free rider?

a. Mickey buys groceries from the store where he works.
b. Donald rides to work with Betsey, but he pays Betsey for gasoline and other travel-related
expenses.
c. Fred drives 20,000 miles a year on public streets, but he pays no more in property taxes than
Barney, who only drives 1,000 miles.
d. Wilma watches many public television programs, but she has never sent in a contribution to the
station.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

13. The free-rider problem

a. forces the supply of a public good to exceed its demand.
b. results in common resources becoming club goods.
c. explains why many local governments supply public goods.
d. results in public goods becoming private goods.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

14. 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. market power.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

15. When a free-rider problem exists,

a. the market will devote too few resources to the production of the good.
b. the cost of the good will always be more than the benefit of the good.
c. the good will not be produced.
d. entrepreneurs will eventually find a way to make free-riders pay their share.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

16. Suppose that everyone prefers to live in a society without poverty. Further suppose that some private
charities are successful in reducing poverty. People who do not contribute to the charities
a. receive no external benefit from private antipoverty programs.
b. decrease the reliance of individuals on antipoverty programs.
c. can free ride on the generosity of others.
d. are most likely to be in favor of government-sponsored programs.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Interpretive

17. You are the mayor of a town with 20,000 residents. The head of your economic development agency
recently conducted a survey in which the 20,000 residents said that a small public library in the center
of town would be worth $40 to each of them. Because the cost to build the library is only $500,000,
you arrange to have the library built. Everyone in town enjoys the library, but when you asked for
donations to pay for the library, you only collected $100,000. You are convinced that
a. the survey must have overstated how much the library was worth to each resident; otherwise, you
would have collected $500,000 in donations.
b. the cost of the library exceeded the social benefits.
c. the library was an example of the Tragedy of the Commons.
d. most residents of the town are probably free-riders at the library.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Analytical

18. You are the mayor of a town with 20,000 residents. The head of your economic development agency
recently conducted a survey in which the 20,000 residents said that a small public library in the center
of town would be worth $40 to each of them. The cost to build the library is $500,000. Which of
the following is the most efficient option?
a. The library should be built and paid for with donations collected from residents, as these
donations should more than cover the cost of the library.
b. The library should be built and paid for by the town government and paid for with a tax on the
residents because all residents would benefit from it but some residents would not donate if they
were asked.
c. The library should be built and paid for by the wealthiest ten percent of the residents.
d. The library should not be built.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Analytical

19. 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.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

20. Most lighthouses are operated by the government because

a. of the free-rider problem.
b. lighthouses are no longer valued by society.
c. most lighthouses are only tourist attractions in state and national parks.
d. shipping companies would not be able to afford maintenance fees for lighthouses.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

21. A lighthouse is typically considered to be 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.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

22. A free rider problem arrises when

a. there are very few beneficiaries and exclusion of any one of them is possible.
b. there are many beneficiaries and exclusion of any one of them is possible.
c. there are many beneficiaries and exclusion of any one of them is impossible.
d. there are very few beneficiaries and they all try to use the good simultaneously.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Applicative

23. Which of the following is an example of the free-rider problem?

a. Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them
pays the full cost of the care.
b. Alfred receives a free lunch from the local "Meals on Wheels" program because of his low
monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch.
c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives
next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too.
Thus, Betty receives free protection from burglars because of Buster's barking.
d. Sam purchases a burger at a fast food restaurant and gets a second burger free because the
restaurant is having a buy one, get one free sale.
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Analytical

24. National defense is a classic example of a public good because

a. there is no market for private security services.
b. it is difficult to exclude people from receiving the benefits from national defense once it is
provided.
c. everyone agrees that some level of national defense is important, but only the government knows
the optimal amount.
d. there are no private firms willing to supply defense goods such as tanks and weapons.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

25. The national defense of the United States is not rival because
a. my enjoyment of the national defense does not diminish your enjoyment of the national defense
of the United States.
b. my enjoyment of the national defense does diminish your enjoyment of the national defense of
the United States.
c. once the nation is defended, it is impossible to prevent any single person from enjoying the
benefit of this defense.
d. once the nation is defended, it is possible to prevent any single person from enjoying the benefit
of this defense.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Applicative

26. The national defense of the United States is not excludable because
a. my enjoyment of the national defense does not diminish your enjoyment of the national defense
of the United States.
b. my enjoyment of the national defense does diminish your enjoyment of the national defense of
the United States.
c. once the nation is defended, it is impossible to prevent any single person from enjoying the
benefit of this defense.
d. once the nation is defended, it is possible to prevent any single person from enjoying the benefit
of this defense.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Applicative

27. It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the
U.S. military are produced by private firms. We can conclude that
a. resources would be used more efficiently if the government produced the weapons.
b. resources would be used more efficiently if private firms provided national defense.
c. weapons are rival in consumption and excludable, but national defense is not rival in
consumption and not excludable.
d. national defense is rival in consumption and excludable, but weapons are not rival in
consumption and not excludable.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

28. 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 are produced more efficiently.
c. free-riders make it difficult for private markets to supply the socially optimal quantity.
d. public goods increase government revenues.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

29. Knowledge is an example of a

a. public good.
b. private good.
c. common resource.
d. club good.
ANS: A PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Applicative

30. Which of the following statements is not correct?

a. Medical research can be an example of a public good.
b. The private market will tend to undersupply public goods.
c. The free-rider problem occurs when a good is nonexcludable.
d. All goods provided by the government are public goods.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Analytical

31. Private companies will invest in medical research if

a. they will produce general knowledge.
b. they will produce a specific product for which they may receive a patent.
c. there is no government intervention in the market for medical products.
d. others will benefit from their discoveries.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Property rights MSC: Interpretive

32. The U.S. patent system

a. makes general knowledge excludable.
b. makes specific, technical knowledge excludable.
c. creates a disincentive to invent.
d. Both a and b are correct.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Excludability MSC: Applicative

33. Which of the following is an example of general knowledge, as opposed to specific knowledge that
can be patented?
a. the invention of a longer-lasting battery
b. a mathematical theorem
c. a method for constucting a high-performance microchip
d. the chemical formula for an adhesive
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Excludability MSC: Applicative

34. It should not be surprising if the public sector fails to pay for the right amount or right kinds of basic
research because
a. basic research is not a public good.
b. the benefits of basic research are hard to measure.
c. members of Congress usually have little expertise in science.
d. Both b and c are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

35. Advocates of antipoverty programs claim that fighting poverty

a. is best accomplished by charities.
b. is a public good.
c. is more efficiently accomplished by the market.
d. should not be attempted with tax dollars.
ANS: B PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

36. Advocates of antipoverty programs believe that fighting poverty

a. can make everyone better off.
b. is most successfully accomplished by charities.
c. is most efficiently accomplished by the market.
d. reduces the well-being of tax payers.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

37. If everyone benefits from helping the poor,

a. government intervention cannot improve social well-being.
b. eliminating taxes aimed at redistributing income will make rich people better off.
c. taxing the wealthy to raise living standards of the poor can potentially make everyone better off.
d. private markets can adequately provide charity programs to help the poor, despite free-rider
problems.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

38. Which of the following is a disadvantage of government provision of a public good?

a. The government lacks information about what people are willing to pay for the good.
b. The government does not provide enough of any public good.
c. The private sector can provide all public goods at a lower cost.
d. None of the above is a disadvantage.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Interpretive

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

a. It is nonexcludable.
b. It is not diminished or depreciated as additional people consume the good.
c. Its benefits cannot be withheld from anyone.
d. Because it is a free good, there is no opportunity cost.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Interpretive

40. To achieve the optimal provision of public goods, the

a. market should be allowed to arrive at an equilibrium without government intervention.
b. government must limit the provision of the goods.
c. government must tax producers of the goods.
d. government must either provide the goods or subsidize their production.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Applicative

41. Producers have little incentive to produce a public good because

a. the social benefit is less than the private benefit.
b. the social benefit is less than the social cost.
c. there is a free-rider problem.
d. there is a Tragedy of the Commons.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

42. The government provides public goods because

a. private markets are incapable of producing these types of 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 accrue to private producers.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Applicative

43. Too few resources are devoted to the creation of knowledge because profit-seeking firms
a. undervalue knowledge in their pursuit of revenues.
b. overuse their patents.
c. tend to free-ride on the knowledge that others have developed.
d. tend to rely on existing employee knowledge.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

44. As with many public goods, determining the appropriate level of government support for the produc-
tion of general knowledge is difficult because
a. patents correct for an unknown portion of the externality.
b. benefits are hard to measure.
c. members of Congress are often experts in the sciences.
d. the costs always exceed the benefits.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

45. Which of the following is a disadvantage of government provision of a public good such as national
defense?
(i) The government does not know the exact willingness of consumers to pay for the public
good.
(ii) The free-rider problem is more likely to occur when the government provides a public
good than when the private sector provides a public good.
(iii) Taxpayers do not agree on the optimal quantity of the public good that the government
should provide.
a. (i) only
b. (i) and (ii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

46. Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce
the risk of someone dying in an accident from 4.1 percent to 1.5 percent over the life of the highway.
If a human life is worth $4.2 million, then the project is worth doing as long as it does not cost more
than
a. $67,200.
b. $109,200.
c. $274,500.
d. $1.6 million.
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical

47. The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all
applicants and operates on both tuition and private donations. Although every resident places value
on having an educated community, the school's revenues have suffered lately due to a large decline in
private donations from the elderly population. Since the benefit that each citizen receives from having
an educated community is a public good, which of the following would not be correct?
a. The free-rider problem causes the private market to undersupply education to the community.
b. The government can potentially help the market reach a socially optimal level of education.
c. A tax increase to pay for education could potentially make the community better off.
d. The private market is the best way to supply education.
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical

48. The local fire department wants to buy some new equipment at a cost of $300,000. If a human life is
worth $10 million, the equipment is worth buying if it reduces the risk of someone dying in a fire
over the life of the equipment by at least
a. 1 percentage point.
b. 3 percentage points.
c. 5 percentage points.
d. 30 percentage points.
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical

49. The difference between specific knowledge and general knowledge is that
a.
the creation of general knowledge is usually more profitable for the creator.
b. specific knowledge is excludable, while general knowledge is not excludable.
c. general knowledge is excludable, while specific knowledge is not excludable.
d. general knowledge is rival in consumption, while specific knowledge is not rival in consumption.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Applicative

50. Which of the following is not a reason why government agencies subsidize basic research?
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 the
subsidies.
d. The government wants to attract the brightest researchers away from private research firms.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Analytical

51. 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.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability MSC: Interpretive

52. In deciding whether a good is a public good, one must determine the
a. incomes of those who benefit from the good.
b. value of the external benefits that accrue to resource owners.
c. excludability of the good.
d. All of the above are correct.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Interpretive

Table 11-1
Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three
residents are trying to determine how large, in acres, they should build the public park. The table
below shows each resident’s willingness to pay for each acre of the park.
Acres Mary Bill Tricia
1 $14 $18 $30
2 10 14 26
3 6 10 22
4 4 6 18
5 2 3 14
6 0 1 10
7 0 0 6
53. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre. How many acres should
the park be to maximize total surplus from the park in Anywhere?
a. 2 acres
b. 3 acres
c. 4 acres
d. 5 acres
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
54. Refer to Table 11-1. Suppose the cost to build the park is $16 per acre. How large should the
park be to maximize total surplus from the park in Anywhere?
a. 2 acres
b. 3 acres
c. 4 acres
d. 5 acres
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
55. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have
agreed to split the cost of building the park equally. If the residents vote to determine the size of
park to build, basing their decision solely on their own willingness to pay (and trying to maximize
their own surplus), what is the largest park size for which the majority of residents would vote “yes?”
a. 0 acres
b. 1 acre
c. 2 acres
d. 3 acres
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
56. Refer to Table 11-1. Suppose the cost to build the park is $15 per acre and that the residents have
agreed to split the cost of building the park equally. If the residents vote to determine the size of
park to build, basing their decision solely on their own willingness to pay (and trying to maximize
their own surplus), what is the largest park size for which the majority of residents would vote “yes?”
a. 1 acre
b. 2 acres
c. 3 acres
d. 4 acres
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

57. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have
agreed to split the cost of building the park equally. To maximize his own surplus, how many acres
would Bill like Anywhere to build?
a. 0 acres
b. 1 acre
c. 2 acres
d. 3 acres
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
58. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have
agreed to split the cost of building the park equally. If the residents decide to build a park with size
equal to the number of acres that maximizes total surplus from the park, how much total surplus will
Mary receive?
a. -$6
b. -$3
c. $3
d. $10
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
59. Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have
agreed to split the cost of building the park equally. If the residents decide to build a park with size
equal to the number of acres that maximizes total surplus from the park, how much total surplus will
Bill receive?
a. -$2
b. $2
c. $9
d. $10
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

Table 11-2
Consider a small town with only three families, the Johnson family, the Marshall family, and the
Walker family. The town does not currently have any streetlights so it is very dark at night. The
three families are considering putting in streetlights on Main Street and are trying to determine how
many lights to install. The table below shows each family’s willingness to pay for each streetlight.
Number of The Johnson Family The Marshall Family The Walker
Streetlights Family
1 $170 $240 $210
2 130 190 200
3 80 130 170
4 20 65 120
5 0 25 50
6 0 0 10
60. Refer to Table 11-2. Suppose the cost to install each streetlight is $450. How many streetlights
should the town install to maximize total surplus from the streetlights?
a. 1 streetlight
b. 2 streetlights
c. 3 streetlights
d. 4 streetlights
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
61. Refer to Table 11-2. Suppose the cost to install each streetlight is $180. How many streetlights
should the town install to maximize total surplus from the streetlights?
a. 1 streetlight
b. 2 streetlights
c. 3 streetlights
d. 4 streetlights
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
62. Refer to Table 11-2. Suppose the cost to install each streetlight is $450 and the families have
agreed to split the cost of the streetlights equally. If the families vote to determine the number of
streetlights to install, basing their decision solely on their own willingness to pay (and trying to
maximize their own surplus), what is the greatest number of streetlights for which the majority of
families would vote “yes?”
a. 1 streetlight
b. 2 streetlights
c. 3 streetlights
d. 4 streetlights
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

63. Refer to Table 11-2. Suppose the cost to install each streetlight is $180 and the families have
agreed to split the cost of the streetlights equally. If the families vote to determine the number of
streetlights to install, basing their decision solely on their own willingness to pay (and trying to
maximize their own surplus), what is the greatest number of streetlights for which the majority of
families would vote “yes?”
a. 1 streetlight
b. 2 streetlights
c. 3 streetlights
d. 4 streetlights
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
64. Refer to Table 11-2. Suppose the cost to install each streetlight is $180 and the families have
agreed to split the cost of installing the streetlights equally. To maximize their own surplus, how
many streetlights would the Johnson’s like the town to install?
a. 0 streetlights
b. 1 streetlight
c. 2 streetlights
d. 3 streetlights
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
65. Refer to Table 11-2. Suppose the cost to install each streetlight is $300 and the families have
agreed to split the cost of installing the streetlights equally. To maximize their own surplus, how
many streetlights would the Marshall’s like the town to install?
a. 0 streetlights
b. 1 streetlight
c. 2 streetlights
d. 3 streetlights
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
66. Refer to Table 11-2. Suppose the cost to install each streetlight is $450 and the families have
agreed to split the cost of installing the streetlights equally. To maximize their own surplus, how
many streetlights would the Walker’s like the town to install?
a. 0 streetlights
b. 1 streetlight
c. 2 streetlights
d. 3 streetlights
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

Table 11-3
This table describes the defense demands for three equal sized groups of people in Nirvanaville. The
second, third, and fourth column shows the quantity that a group will demand for a given price (the
first column).
Price Group #1 Group #2 Group #3
$14 0 0 0
$12 0 0 3
$10 0 3 6
$8 3 6 13
$6 6 13 22
$4 13 22 33
$2 22 33 44
$0 33 44 58
67. Refer to Table 11-3. What is the value of the 33rd unit of national defense in Nirvanaville?
a. $0
b. $2
c. $4
d. $6
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical
68. Refer to Table 11-3. What is the value of the 13th unit of national defense in Nirvananville?
a. $8
b. $14
c. $18
d. $24
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical
69. Refer to Table 11-3. If the marginal cost of national defense is constant at $12 per unit, what is the
efficient level of national defense to provide?
a. 3 units
b. 13 units
c. 22 units
d. 33 units
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical
70. Refer to Table 11-3. If the marginal cost of national defense is constant at $24 per unit, what is the
efficient level of national defense to provide?
a. 3 units
b. 6 units
c. 13 units
d. 22 units
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical

Table 11-4
There are four homes along Belmont Circle, which surrounds a small plot of land. The land currently
has no trees, and the 4 homeowners -- Adams, Benitez, Chen, and Davis -- are considering the idea of
contributing to a pool of money that will be used to plant up to 4 trees. The table represents their
willingness to pay, that is, the maximum amount that each homeowner is willing to contribute toward
each tree.
Adams Benitez Chen Davis
First tree $100 $115 $120 $90
Second tree 50 110 110 50
Third tree 20 100 80 30
Fourth tree 10 50 40 0
71. Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be
planted to maximize the total surplus of the four homeowners?
a. 1
b. 2
c. 3
d. 4
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
72. Refer to Table 11-4. Suppose the cost to plant each tree is $90. How many trees should be
planted to maximize the total surplus of the four homeowners?
a. 1
b. 2
c. 3
d. 4
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
73. Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have agreed
to split all tree-planting costs equally. Which homeowner(s) would be opposed to planting any
trees?
a. only Davis
b. only Adams and Davis
c. only Adams, Benitez, and Davis
d. Adams, Benitez, Chen, and Davis
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
74. Refer to Table 11-4. Suppose the cost to plant each tree is $120 and the 4 homeowners have agreed
to split all tree-planting costs equally. How many trees would Adams prefer to plant?
a. 0
b. 1
c. 2
d. 3
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

75. Refer to Table 11-4. Suppose the cost to plant each tree is $220 and the 4 homeowners have agreed
to split all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 3
trees?
a. only Benitez
b. only Benitez and Chen
c. only Benitez, Chen, and Davis
d. Adams, Benitez, Chen, and Davis
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
76. Refer to Table 11-4. Suppose the cost to plant each tree is $340 and the 4 homeowners have agreed
to split all tree-planting costs equally. Which homeowner(s) would be in favor of planting at least 1
tree?
a. only Benitez
b. only Benitez and Chen
c. only Benitez, Chen, and Davis
d. Adams, Benitez, Chen, and Davis
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
Table 11-5
A small strip mall contains four retail stores, and crime has recently been on the increase in the
neighborhood of the strip mall. The owners of the four stores — Stores A, B, C, and D — are
considering contributing to a pool of money that will be used to hire up to 4 security guards. The
table represents their willingness to pay, that is, the maximum amount that each store owner is willing
to contribute, per day, to hire each security guard.
A B C D
First guard $35 $40 $20 $50
Second guard 25 35 15 40
Third guard 15 30 10 30
Fourth guard 5 25 5 20
77. Refer to Table 11-5. Suppose the cost to hire each individual guard is $70 per day. How many
guards should be hired to maximize the total surplus of the four store owners?
a. 1
b. 2
c. 3
d. 4
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Total surplus MSC: Applicative
78. Refer to Table 11-5. Suppose the cost to hire each individual guard is $100 per day. How many
guards should be hired to maximize the total surplus of the four store owners?
a. 1
b. 2
c. 3
d. 4
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Total surplus MSC: Applicative

79. Refer to Table 11-5. Suppose the cost to hire each individual guard is $130 per day. How many
guards should be hired to maximize the total surplus of the four store owners?
a. 1
b. 2
c. 3
d. 4
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Total surplus MSC: Applicative
80. Refer to Table 11-5. Suppose the cost to hire each individual guard is $100 per day. Then total
surplus for the 4 store owners is
a. $45 if 1 guard is hired.
b. $60 if 2 guards are hired.
c. $45 if 3 guards are hired.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Total surplus MSC: Applicative
81. Refer to Table 11-5. Suppose the cost to hire each individual guard is $75 per day. Then total
surplus for the 4 store owners is
a. $75 if 1 guard is hired.
b. $110 if 2 guards are hired.
c. $130 if 3 guards are hired.
d. $105 if 4 guards are hired.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Total surplus MSC: Applicative
82. Refer to Table 11-5. Suppose the cost to hire each guard is $100 per day and the 4 store owners
have agreed to split the costs of hiring guards equally. Which store owner(s) would be opposed to
hiring any guards?
a. only the owner of Store C
b. only the owners of Stores A and C
c. only the owners of Stores A, B, and C
d. All 4 store owners would be opposed to hiring any guards.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
83. Refer to Table 11-5. Suppose the cost to hire each guard is $120 per day and the 4 store owners
have agreed to split the costs of hiring guards equally. How many guards would the owner of Store
A prefer to hire?
a. 0
b. 1
c. 2
d. 3
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

84. Refer to Table 11-5. Suppose the cost to hire each guard is $120 per day and the 4 store owners
have agreed to split the costs of hiring guards equally. How many guards would the owner of Store
C prefer to hire?
a. 0
b. 1
c. 2
d. 3
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
85. Refer to Table 11-5. Suppose the cost to hire each individual guard is $90 per day and the 4 store
owners have agreed to split the costs of hiring guards equally. Which of the following statements is
correct?
a. The owner of Store A would prefer to hire 3 guards.
b. The owner of Store B would prefer to hire 4 guards.
c. The owner of Store C would prefer to hire 1 guard.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative
86. Refer to Table 11-5. Suppose the cost to hire each individual guard is $110 per day and the 4 store
owners have agreed to split the costs of hiring guards equally. Which of the following statements is
correct?
a. The owner of Store A would prefer to hire 2 guards.
b. The owner of Store C would prefer to hire 1 guard.
c. The owners of Stores B and D would prefer to hire 3 guards.
d. All of the above are correct.
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

87. If the government decides to build a new highway, the first step would be to conduct a study to de-
termine the value of the project. The study is called a
a. fiscal analysis.
b. monetary analysis.
c. welfare analysis.
d. cost-benefit analysis.
ANS: D PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Definitional

88. Suppose the cost to erect a tornado siren in a small town is $20,000. In addition, suppose the value
of a human life is $10 million. By what percentage would the siren need to reduce the risk of a fa-
tality for the benefits of the siren to exceed the costs of the siren?
a. By at least 0.2 percentage points.
b. By at least 0.5 percentage points.
c. By at least 2 percentage points.
d. By at least 5 percentage points.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

89. Studies that compare the wages of more risky and less risky occupations estimate the value of a hu-
man life to be about
a. $1 million.
b. $5 million.
c. $10 million.
d. $20 million.
ANS: C PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Applicative

90. Which of the following is not a reason that the findings of cost-benefit analyses on public goods are
only rough approximations?
a. Without prices, it is difficult to be sure how much people really value a good.
b. Analysts can't be sure that the respondents to surveys are telling the truth.
c. Analysis must include not only the cost of building the project but also the cost of maintenance,
if any.
d. People value goods differently if they are publicly provided rather than privately provided.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Interpretive

91. Which of the following is an approach used by economists to calculate the value of a human life?
a. comparing the salaries of people who live in cities with more traffic lights to those who live in
cities with fewer traffic lights
b. comparing the wages of more risky occupations to less risky occupations
c. comparing the costs of vehicles with safety features such as side-impact airbags to those without
such safety features
d. All of the above are correct.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Applicative

92. Antonio, Vanessa, and Norah all enjoy looking at flowers blooming in gardens in their neighborhood.
The neighborhood association is considering planting a flower garden around the sign at the entrance
to the neighborhood. Antonio values the garden at $25, Vanessa at $15, and Norah at $30. The flow-
ers and labor for the garden cost $55. What should the neighborhood association do?
a. Plant the garden because people like flowers.
b. Plant the garden because the benefits outweigh the costs.
c. Do not plant the garden because the costs outweigh the benefits.
d. Do not plant the garden in order to prevent the Tragedy of the Commons problem of overuse.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

93. Suppose that the Town of Bumbletree is considering hiring an additional police officer. The reduction
in crime is estimated to be worth $10 for each of Bumbletree’s 5,000 residents. What should the city
do?
a. Hire the police officer because additional safety is priceless.
b. Hire the police officer if the cost of the new officer is less than $50,000.
c. Do not hire the police officer because the costs exceed the benefits.
d. Hire the police officer only if the benefit to the residents exceeds $50,000.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

94. Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The
guard rail will cost $70,000. The average damage done to vehicles that slide off the road at the curve

is $10,000. It is expected that the guard rail will prevent 5 vehicles from sliding off the road during its
usable life. What should the county do?
a. Install the guard rail because safety is priceless.
b. Install the guard rail because the benefits exceed the costs.
c. Do not install the guard rail because the costs exceed the benefits.
d. Do not install the guard rail at any cost because drivers can purchase private insurance for their
vehicles.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

95. Economists think that the best way to determine the value of a human life is to
a. evaluate the value of a person’s expected earnings in the labor market.
b. evaluate the risks people are willing to take and what they would have to be paid to take them.
c. determine a person’s accumulated wealth at the time of death.
d. do nothing; human life is priceless.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Interpretive

96. A cost-benefit analysis of a highway is difficult to conduct because analysts

a. cannot estimate the explicit cost of a project that has not been completed.
b. are unlikely to have access to costs on similar projects.
c. are not able to consider the opportunity cost of resources.
d. will have difficulty estimating the value of the highway.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Applicative

97. Cost-benefit analysts often encounter the problem that those who would benefit from government
provision of a public good tend to
a. overstate the benefit they would receive from the public good and those who would be harmed
by government provision of a public good tend to overstate the costs they would incur from the
public good.
b. overstate the benefit they would receive from the public good and those who would be harmed
by government provision of a public good tend to understate the costs they would incur from the
public good.
c. understate the benefit they would receive from the public good and those who would be harmed
by government provision of a public good tend to overstate the costs they would incur from the
public good.
d. understate the benefit they would receive from the public good and those who would be harmed
by government provision of a public good tend to understate the costs they would incur from the
public good.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

98. Simply asking people how much they value a highway is not a reliable way of measuring the benefits
and costs because
a. those who stand to gain have an incentive to tell the truth.
b. those who stand to lose have an incentive to exaggerate their true costs.
c. answers to the survey questions will always be downwardly biased.
d. not everyone asked will be using the highway.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

99. The greatest difficulty with cost-benefit analysis of a public project is determining
a. whether government revenue is sufficient to cover the cost of the project.
b. which contractor should be awarded the project.
c. the cost of the project.
d. the value or benefit of the project.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

100. Each of the following explains why cost-benefit analysis is difficult except
a. there is no price with which to judge the value of a public good.
b. surveys are often biased and unreliable.
c. it is difficult to identify all factors that influence costs and benefits of public goods.
d. government projects rarely have sufficient funding to complete them on time.
ANS: D PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

101. Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to di-
vide the flow of traffic in an effort to increase safety on a given highway. Which of the following
statements is correct?
a. The benefits are usually easier to measure than the costs.
b. Because human life is priceless, any measure to increase traffic safety would generate benefits
that outweigh the costs.
c. Estimating the value of a human life is difficult but necessary in order to evaluate the proposal.
d. Both a and b are correct.
ANS: C PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

102. In a cost-benefit analysis, the value of a human life is sometimes calculated on the basis of
a. the risks that a person voluntarily exposes herself to in her job and/or recreational choices.
b. the value of each individual's assets.
c. the belief that human life is priceless.
d. the amount of resources required to adequately sustain life.
ANS: A PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

103. Cost-benefit analysis is important to determine the role of government in our economy because
a. the government should provide all goods for which the benefits exceed the costs.
b. cost-benefit analysis identifies the possible gains to society from government provision of a
particular good.
c. markets for private goods cannot effectively assign costs and benefits.
d. cost-benefit analysis is the best tool to identify market failures.
ANS: B PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

104. Before considering any public project, the government should

(i) compare the total cost and total benefits of the project.
(ii) conduct a cost-benefit analysis.
(iii) infer that citizens who vote for a project are willing to pay equally for it.
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i), (ii), and (iii)
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

105. To increase safety at a bad intersection, you must decide whether to install a traffic light in your
hometown at a cost of $25,000. If the traffic light reduces the risk of fatality by 0.3 percent, and the
value of a human life is estimated to be $10 million, you should
a. install the light because the expected benefit of $30,000 is greater than the cost.
b. install the light because the expected benefit of $25,000 is greater than the cost.
c. not install the light because the expected benefit of $25,000 is only equal to the cost.
d. not install the light because the expected benefit of $3,000 is less than the cost.
ANS: A PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

106. A town engineer comes to the city council with a proposal to install a traffic light at a certain inter-
section that currently has a stop sign. The benefit of the traffic light is increased safety because the
light will reduce the incidence of fatal traffic accidents by 50 percent per year. Which of the follow-
ing statements is correct?
a. The city council should vote to install the traffic light because the benefits will outweigh the
costs.
b. The city council should carefully evaluate the benefits of reduced fatalities against only the
explicit costs of the light.
c. The city council should carefully evaluate the benefits of reduced fatalities against the costs of
the light and of the extra time that drivers will spend waiting for a green light.
d. The costs will invariably outweigh the benefits.
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

107. Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The
walkway is expected to reduce the risk of fatality by 3 percent, and the cost of a human life is esti-
mated at $10 million. The town should
a. install the walkway because the estimated benefit is twice the cost.
b. install the walkway because the estimated benefit equals the cost.
c. not install the walkway, since the cost is twice the estimated benefit.
d. install the walkway, since the cost of even a single life is too great not to take action.
ANS: A PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

108. Suppose that the cost of installing an overhead pedestrian walkway in a college town is $150,000.
The walkway is expected to reduce the risk of fatality by 1.5 percent, and the cost of a human life is
estimated at $10 million. The town should
a. install the walkway because the estimated benefit is twice the cost.
b. be indifferent between installing and not installing the walkway because the estimated benefit
equals the cost.
c. not install the walkway, since the cost is twice the estimated benefit.
d. install the walkway, since the cost of even a single life is too great not to take action.
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

109. When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis
a. are forced to pursue any project in which a single human life is saved.
b. are likely to make decisions that optimally allocate society's scarce resources.
c. would not pursue any public project that would not save human life.
d. would be forced to rely on private markets to provide public goods.
ANS: A PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

110. Suppose that you want to put on a fireworks display in your hometown of 1,000 people this July. The
cost of the display is $6,000, and each person values the display at $5. After a month, you have only
sold 50 tickets at $5 each. The result is that
a. the local government should put on the display, but you should not.
b. you should still put on the display, but the local government should not.
c. neither you nor the local government should put on the display.
d. either you or the local government should put on the display.
ANS: C PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

111. When the value of a human life is calculated according to the economic contribution a person makes
to society (as reflected in her income-earning potential), the troubling implication is 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.
ANS: A PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Interpretive

112. Suppose a human life is worth $10 million. Installing a better lighting system in the city park would
reduce the risk of someone being murdered there from 2.3 to 1.8 percent over the life of the system.
The city should install the new lighting system if its cost does not exceed
a. $50,000.
b. $180,000.
c. $230,000.
d. $500,000.
ANS: A PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Analytical

113. 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 the chemical is $18 million. If the value of

a human life is equal to $10 million, how many people must the policy affect in order for the benefits
to exceed the costs?
a. 301
b. 601
c. 1801
d. 3601
ANS: D PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

114. The Occupational Safety and Health Administration (OSHA) has determined that 100 workers are
exposed to a hazardous chemical used in the production of diet soft drinks. The cost of imposing a
regulation that would ban the chemical is $10 million. OSHA has calculated that each person saved
by this regulation has a value equal to $10 million. If the benefits are exactly equal to the costs, what
probability is OSHA using to assess the likelihood of a fatality from exposure to this chemical?
a. 0.001
b. 0.01
c. 0.1
d. 1.0
ANS: B PTS: 1 DIF: 3 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Cost-benefit analysis MSC: Analytical

115. In a certain city, the government is considering acquiring some land and turning it into a park (with-
out any fences or gates). In an attempt to determine the extent to which residents of the city would
value the park, residents are asked to fill out a questionnaire. Which of the following is correct?
a. On the questionnaire, some residents are likely to exaggerate the value they associate with the
park.
b. On the questionnaire, some residents are likely to exaggerate the costs they associate with the
park.
c. The use of such a questionnaire in cost-benefit analysis is likely to produce only rough
approximations of residents’ perceptions of the costs and benefits of a park.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Cost-benefit analysis MSC: Interpretive
COMMON RESOURCES

1. Which of the following statements is not correct?

a. Environmental degradation is an example of the Tragedy of the Commons.
b. Cost-benefit analysis is an important tool that economists use to evaluate the benefits of
providing a public good.
c. Some goods, such as lighthouses, may be either private or public goods.
d. The free-rider problem prevents governments from supplying public goods.
ANS: D PTS: 1 DIF: 3 REF: 11-2 | 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Private goods | Public goods | Free riders | Cost-benefit analysis
MSC: Analytical

2. Which of the following is not a typical solution to the “Tragedy of the Commons?”
a. taxing the use of the common resource
b. turning the common resource into a club good
c. turning the common resource into a private good
d. regulating the use of the common resource
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Interpretive

3. Neither public goods nor common resources are

a. excludable, but only public goods are not rival in consumption.
b. excludable, but only common resources are not rival in consumption.
c. rival in consumption, but only public goods are not excludable.
d. rival in consumption, but only common resources are not excludable.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods | Common resources MSC: Interpretive

4. Which of the following is not a way for the government to solve the problem of excessive use of
common resources?
a. regulation
b. taxes
c. turning the common resource into a public good
d. turning the common resource into a private good
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

5. Which of the following is not a common resource?

a. congested roads
b. clean water
c. wild gorillas
d. a fireworks display
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

6. Which of the following is not a common resource?

a. clean air
b. clean water
c. open grazing land
d. national defense
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

7. Which of the following is most likely to face extinction?

a. dogs living as pets in households
b. dairy cows living on farms and producing milk
c. bald eagles living in zoos
d. tigers living in the wild
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

8. Which of the following quotations illustrates the Tragedy of the Commons?

a. “A bird in the hand is worth two in the bush.”
b. “The only difference between the rich and other people is that the rich have more money.”
c. “What is common to many is taken least care of, for all men have greater regard for what is their
own than for what they possess in common with others.”
d. “Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after
he is 30 has no head.”
ANS: C PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Tragedy of the Commons MSC: Interpretive

9. Which parable describes the problem of wild animals that are hunted to the point of extinction?
a. Coase theorem
b. Tragedy of the Commons
c. Cost-benefit analysis
d. Clean Air Act
ANS: B PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Applicative

10. An overcrowded beach is an example of

a. a positive externality.
b. a Tragedy of the Commons.
c. an environmentally inefficient allocation of resources.
d. an economically unfair allocation of resources.
ANS: B PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Applicative

11. One way to eliminate the Tragedy of the Commons is to

a. increase law enforcement in public areas.
b. limit access to the commons.
c. increase access to the commons.
d. decrease taxes.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Tragedy of the Commons MSC: Interpretive

12. The Tragedy of the Commons results when a good is

a. rival in consumption and not excludable.
b. excludable and not rival in consumption.
c. both rival in consumption and excludable.
d. neither rival in consumption nor excludable.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Definitional

13. The Tragedy of the Commons occurs because

a. a common resource is rival in consumption.
b. a common resource is underutilized.
c. crimes are committed in public places.
d. common resources are subject to exclusionary rules.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Definitional

14. The Tragedy of the Commons occurs because

a. government property is most heavily used by the wealthy.
b. everyone deserves an equal share of government property.
c. social and private incentives differ.
d. established property rights create competition.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Interpretive

15. The Tragedy of the Commons for sheep grazing on common land can be eliminated by the govern-
ment doing each of the following except
a. assigning land property rights.
b. auctioning off sheep-grazing permits.
c. taxing sheep flocks.
d. subsidizing sheep flocks.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Tragedy of the Commons MSC: Applicative

16. The Ogallala aquifer is a large underground pool of fresh water under several western states in the
United States. Any farmer with land above the aquifer can at present pump water out of it. We might
expect that
a. over time, the aquifer is likely to be overused.
b. each farmer has a sufficient incentive to conserve the water.
c. state governments have an incentive to insure that their farmers do not overuse the water.
d. resources would be used more efficiently if the government paid for the pumps farmers use to get
the water.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Tragedy of the Commons MSC: Interpretive

17. Each of the following is likely to be a successful way for the government to solve the problem of
overuse of a common resource except
a. regulating the use or consumption of the common resource.
b. taxing the use or consumption of the common resource.
c. selling the common resource to a private entity.
d. asking individuals to voluntarily reduce their use of the resource.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

18. The Tragedy of the Commons

a. occurs most often with public goods.
b. is only applicable to shared grazing rights among sheep herders.
c. is eliminated when property rights are assigned to individuals.
d. occurs when social incentives are in line with private incentives.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

19. The Tragedy of the Commons can be corrected by

a. conducting a cost-benefit analysis.
b. assigning property rights to individuals.
c. providing government subsidies for the resource.
d. making certain everyone in the economy has access to the resource.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

20. The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town
commons leads to a destruction of the grazing resource. To correct for this problem, the town could
a. allow individual shepherds to chose their own flock sizes.
b. internalize the externality by subsidizing the production of sheep's wool.
c. auction off a limited number of sheep-grazing permits.
d. wait until the market corrects the problem.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

21. Three business people meet for lunch at an Indian restaurant. They decide that each person will order
an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly
among each of the people at the table. When the food is delivered to the table, each person faces in-
centives similar to the
a. consumption of a common resource good.
b. production of a public good.
c. consumption of a club good.
d. production of a private good.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Tragedy of the Commons MSC: Analytical

22. If the use of a common resource is not regulated,

a. no one can enjoy it.
b. it will tend to be underused.
c. property rights will be clearly defined.
d. it will be overused.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Definitional

23. On holiday weekends thousands of people picnic in state parks. Some picnic areas become so over-
crowded the benefit or value of picnicking diminishes to zero. An overcrowded picnic area is an ex-
ample of
a. a private good.
b. a club good.
c. a Tragedy of the Commons.
d. public good.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Applicative

24. The degradation of the environment from litter is a

a. a negative externality.
b. free rider problem.
c. Tragedy of the Commons.
d. Both a and c are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

25. The sign on a church in your neighborhood reads “All are welcome at Sunday Service.” Because
the church has limited seating and is usually full, the Sunday Service is
a. a private good.
b. a public good.
c. a club good.
d. a common resource.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

26. A New York legislator wanted to create a deposit on cigarettes butts. If implemented, people would
have the incentive to (1) not toss cigarette butts onto public streets and sidewalks, and (2) pick butts
up to redeem them for the cash. The degradation of the environment from littered cigarette butts is a
a. private goods problem.
b. Nash equilibrium.
c. Tragedy of the Commons.
d. cost-benefit equilibrium.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

27. Which of the following is an example of the Tragedy of the Commons?

a. The number of professional football teams increases to the point where the quality of the games
decreases, as does television viewership.
b. The number of satellites increases to the point where they begin running into each other.
c. Disney World becomes so crowded that it institutes a lottery for admissions.
d. A tiger breeding program becomes so successful that local zoos have to build additional exhibits
so that visitors can view the cats.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Applicative

28. Which of the following is an example of government intervention to solve a Tragedy of the Com-
mons problem?
a. subsidizing basic research
b. building lighthouses
c. toll charges on congested roads
d. cost-benefit analysis
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Applicative

29. Which of the following statements is not correct?

a. A free rider is a person who benefits from something for which he or she does not have to pay.
b. The creation of general knowledge is a public good.
c. The Tragedy of the Commons illustrates the underuse of a common resource.
d. A gasoline tax is an imperfect solution to the problem of traffic congestion on public roads.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

30. The overuse of a common resource relative to its economically efficient use is called
a. the free rider problem.
b. the Tragedy of the Commons.
c. a public good.
d. cost-benefit analysis.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Definitional

31. The Tragedy of the Commons describes

a. government regulation that is necessary to combat externalities.
b. overuse of a common resource relative to its economically efficient use.
c. the nonrivalry feature of a common resource.
d. an effective cost-benefit analysis.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

32. One economically efficient way to eliminate the Tragedy of the Commons is to
a. tax the owners of the resource.
b. prevent anyone from using the resource.
c. reduce the marginal social benefit of the resource.
d. establish private ownership of the resource.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Interpretive

33. Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will or-
der an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly
among each of the people at the table. A Tragedy of the Commons problem is likely for each of the
following reasons except
a. each person has an incentive to eat as fast as possible since their individual rate of consumption
will not affect their individual cost.
b. there is an externality associated with eating the food on the table.
c. when one person eats, he may not take into account how his choice affects his friends.
d. each dish would be both excludable and rival in consumption.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

34. What causes the Tragedy of the Commons?

(i) Social and private incentives differ.
(ii) Common resources are not rival in consumption and are not excludable.
(iii) Common resources are not excludable but are rival in consumption.
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i) and (iii) only
ANS: D PTS: 1 DIF: 3 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tragedy of the Commons MSC: Analytical

35. Each of the following would be considered a common resource except

a. clean air.
b. congested nontoll roads.
c. national defense.
d. open grazing land.
ANS: C PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

36. A toll on a congested road is in essence

a. an interstate highway tax.
b. a Department of Motor Vehicles tax.
c. a gasoline tax.
d. a corrective tax.
ANS: D PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

37. A toll collected from each car traveling during rush hour on a congested road is an effective correc-
tion to the Tragedy of the Commons for all of the following reasons except the toll provides an incen-
tive for commuters to
a. drive at times other than rush hour.
b. use public transit rather than driving.
c. drive more fuel-efficient cars.
d. car-pool.
ANS: C PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

38. The town of Isle is on a small island connected to Big City by a single bridge. Most of the residents
of Isle work in Big City. As a result, the bridge becomes very congested for 2 hours each day at the
typical morning and evening commute times. Which of the following policies considered by the
mayor of Isle would likely be most effective in alleviating the congestion?
a. A fixed toll for the bridge payable by every vehicle crossing the bridge at all days and times.
b. A variable toll for the bridge payable only by vehicles crossing the bridge during the congested
commute times.
c. Any vehicle crossing the bridge at any time must have a sticker paid for with a one-time fee of
$25.
d. A press conference in which the mayor requests that people try to cross the bridge earlier or later
than the typical commute times.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

39. Which city currently charges drivers a “congestion toll” to drive into the heart of the city’s financial,
legal, and entertainment district?
a. Washington, D.C.
b. Sydney
c. Tokyo
d. London
ANS: D PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

40. Which of the following is not an advantage of road tolls as a way to reduce traffic?
a. They charge people based on consumption.
b. They can help bring usage closer to its optimal level.
c. Rates can differ according to the time of day.
d. The administrative costs of collecting the tolls are almost zero, especially for local roads.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

41. Which of the following is not an advantage to congestion charges for motorists who wish to drive on
busy streets?
a. reduced carbon monoxide pollution
b. increased use of public transportation
c. improved taxi service
d. shorter travel time
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

42. A tax on gasoline often reduces road congestion because gasoline

a. and driving are complements.
b. and driving are substitutes.
c. is a normal good, while driving is an inferior good.
d. is an inferior good, while driving is a normal good.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

43. Variable tolls on roads

a. are politically unpopular because people do not like the idea of paying for a good that they used
to consume without paying for it directly.
b. rise when traffic volume increases to ensure the speed on the road is kept high.
c. are an effective way of correcting the common resource problem on roads.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

44. What do American drivers on congested roads and Soviet shoppers waiting in line to purchase cloth-
ing have in common?
a. Both the American drivers and the Soviet shoppers are consuming products at prices that do not
represent the full costs of the products.
b. Both the American drivers and the Soviet shoppers can purchase as much as they want at the
market price.
c. Both the American drivers and the Soviet shoppers could avoid waiting if the prices were
lowered.
d. American drivers and Soviet shoppers have nothing in common.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

45. A variable toll on a road in Washington reached a high during the evening rush hour of $5.75. This
toll bought the drivers who paid it a 27 minute time savings. Which of the following is correct?
a. For some consumers, the toll was less than the opportunity cost of the time they would have
spent in traffic.
b. For some consumers, the toll was more than the opportunity cost of the time they would have
spent in traffic.
c. No consumers would find this toll worth the time saved in traffic.
d. Both a and b are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

46. One of the least regulated common resources today is

a. state parks.
b. the ocean.
c. forest preserves.
d. the Great Lakes.
ANS: B PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

47. The U.S. government protects fish, a common resource, by

a. subsidizing the fishing industry.
b. heavily taxing competing industries.
c. selling fishing licenses and regulating fish lengths.
d. None of the above is correct.
ANS: C PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

48. The goal of requiring licenses for hunting and fishing is

a. to reduce the use of a common resource.
b. to ensure that the people hunting and fishing are qualified.
c. to generate revenue for the government.
d. to monitor compliance with federal gun laws.
ANS: A PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

49. Because elephants roam freely in many countries in Africa, each individual African elephant poacher
has
a. a strong incentive to kill as many elephants as he can find.
b. a strong incentive to protect the elephants.
c. the ability to save the elephants.
d. None of the above is correct.
ANS: A PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

50. Four roommates share an off-campus house and equally share the cost of rent. Everyone says that she
values a clean house, yet the house is usually dirty. To an economist, a clean house in this case rep-
resents
a. a common resource problem.
b. a public good.
c. a natural monopoly.
d. All of the above are correct.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

51. When Rick uses a common resource and diminishes other people's enjoyment of it, he creates
a. a free rider problem.
b. an externality.
c. a nonrenewable resource.
d. general knowledge.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

52. Using a toll to reduce traffic when congestion is greatest is an example of a

a. regulation solution.
b. command-and-control policy.
c. corrective tax.
d. Coase theorem solution.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Applicative

53. Which of the following statements is true of the tax on gasoline?

a. The cost of collecting a gasoline tax outweighs the revenues raised by the tax.
b. It is preferred to tolls as the best solution to road congestion.
c. It discourages driving on noncongested roads, even though there is no congestion externality for
these roads.
d. Both b and c are correct.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

54. Excessive fishing occurs because

a. each individual fisherman has little incentive to maintain the species for the next year.
b. fishermen rely on government managers to worry about fish populations.
c. fishermen are unionized, so they are not concerned with externalities.
d.
fishermen have other marketable skills and do not fear exploitation of fish reserves.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

55. The ocean remains one of the largest unregulated resources for each of the following reasons except
a. many countries have access to the ocean.
b. it is difficult to get international cooperation among countries that hold different values.
c. the oceans are so vast that enforcing any agreements would be difficult.
d. All of the above are reasons the ocean remains one of the largest unregulated resources.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

56. Why do elephants face the threat of extinction while cows do not?
a. Cattle are a valuable source of income for many people, while elephants have no market value.
b. There is a high demand for products that come from cows, whereas there is no demand for
products that come from elephants.
c. There are still lots of cattle that roam free, while all elephants live in zoos.
d. Cattle are owned by ranchers, while elephants are owned by no one.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

57. Elephants are endangered, but cows are not because

a. cows are not as valuable as elephants.
b. elephants are a common resource, while cows are private goods.
c. cows are a common resource, while elephants are private goods.
d. it is legal to kill cows but not elephants.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

58. Why is the commercial value of ivory a threat to the elephant, while the commercial value of beef is
the cow's guardian?
a. Elephants live in Africa, whereas cows live in the United States.

b.
Elephants are a common resource.
c.
Cows are a common resource.
d.
Cows are a public good.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

59. Many species of animals are common resources, and many must be protected by law to keep them
from extinction. Why is the cow not one of these endangered species even though there is such a high
demand for beef?
a. Cows reproduce at a high rate and have adapted well to their environment.
b. Public policies protect cows from predators and diseases.
c. Cows are privately owned, whereas many endangered species are owned by no one.
d. There is a natural ecological balance between the birth rate of cows and human consumption.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

60. Elephant populations in some African countries have started to rise because
a. poachers and environmentalists are working together to save the elephants.
b. new laws make killing elephants and selling their ivory illegal.
c. some elephants have been made a private good, and people are allowed to kill elephants on their
own property.
d. high ivory taxes make it hard to earn a decent return on elephant tusks.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

61. It is common knowledge that many U.S. national parks have become overused. One possible solution
to this problem is to
a. increase entrance fees.
b. decrease camping permit fees.
c. require all visitors to register upon entering the park.
d. sell the land that the parks currently occupy.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

62. One proposed solution to overused, deteriorating national parks would be to

a. increase the number of bears through breeding programs.
b. have Congress increase the entrance fees.
c. decrease management and maintenance of facilities.
d. reduce the number of improved camping facilities.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

63. Nine friends who love the beach decide to pool their financial resources and equally share the cost of
a one-week house rental on Nantucket. Suppose that the beach outside of the house becomes more
congested when the nine additional people join the other beachgoers. Which of the following state-
ments is not correct?
a. Use of the beach by the nine new beachgoers will yield a negative externality.
b. The town can reduce the congestion externality by raising the fee to access the beach.
c. An increase in the fee to access the beach could be viewed as a corrective tax on the externality
of congestion.
d. Each of the nine friends would have been better off staying at home.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

64. Residents of Hong Kong are able to find restaurants that advertise a dish that contains grizzly bear
paws. Since it is unlikely that grizzly bear paws are purchased from a private producer of animal
paws, we can likely conclude that
a. international laws making it illegal to sell grizzly bear paws are likely to be very effective at
eliminating these offerings at Hong Kong restaurants.
b. higher penalties for poaching grizzly bears will prevent poachers from killing.
c. there are likely to be very few grizzly bear poachers.
d. allowing individuals to own and raise grizzly bears for meat would likely reduce the threat of
extinction to grizzly bear populations.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

65. On holiday weekends thousands of people picnic in state parks. Some picnic areas become so over-
crowded the benefit or value of picnicking diminishes to zero. Suppose that the Minnesota State Park
Service institutes a variable fee structure. On weekdays when the picnic areas get little use, the fee is
zero. On normal weekends, the fee is $8 per person. On holiday weekends, the fee is $14 per person.
The fee system corrects a problem known as the
a. Coase theorem.
b. free rider problem.
c. Tragedy of the Commons.
d. public goods problem.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

66. Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and
people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the
trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The
park is a common resource because
a. people can be prevented from using it.
b. access is limited due to driving distances.
c. if too many people use it, one person's use diminishes other peoples’ use.
d. anyone can use it without affecting anyone else.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

67. Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and
people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking on
summer afternoons. Otherwise, it is a great place. An efficient solution to the parking problem would
be to
a. prohibit parking in the vicinity of the park.
b. charge higher prices for parking at busy times.
c. police the parking area and ticket cars that are parked illegally.
d. do nothing.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

68. The commercial value of ivory is a threat to the elephant, but the commercial value of beef is a
guardian of the cow. This is because
a. the cow is raised in developed countries, while the elephant lives primarily in less-developed
countries.
b. cows are private goods, while elephants tend to roam freely without owners.
c. cows and elephants are public goods, but ivory is nonrival.
d. ivory is nonrival and nonexclusive, but beef is rival and exclusive.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

69. Why has the value of ivory threatened the extinction of the elephant, whereas the value of beef has
enhanced the survival of the cow?
a. Cows are a common resource, whereas elephants are owned by governments.
b. Elephants are larger than cows, requiring more economic resources.
c. Elephants live in Africa, where economic resources are scarce.
d. Elephants are a common resource, whereas cows are privately owned.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

70. The Ogallala aquifer is a large underground pool of fresh water under several western states in the
United States. Any farmer with land above the aquifer can at present pump water out of it. Which of
the following statements about the aquifer is correct?
a. The aquifer is a public good which must be publicly owned to be used efficiently.
b. The aquifer is a private good which must be privately owned to be used efficiently.
c. The aquifer is a common property resource which will be overused if no one owns it.
d. The aquifer is a club good which should be left as it is.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

71. A stairwell in a certain office building is always congested at 12:00 p.m. and 1:00 p.m. The conges-
tion is so bad that people have been complaining to the building's owner. Which of the following
methods would be the most efficient way of reducing congestion?
a. Assign each person in the building a time when they are allowed to use the stairwell.
b. Encourage people to voluntarily keep off the stairwell during peak times.
c. Charge everyone who uses the stairwell when it is congested the same fee. People who value the
use of the stairs the most will be the ones who use the stairwell at peak times.
d. Hold a lottery to determine who wins the right to use the stairwell at peak times.
ANS: C PTS: 1 DIF: 3 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

72. On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these
times, electric companies may ask people to voluntarily cut back on their use of electricity. An
economist would suggest that
a. every electric customer has an incentive to prevent the system from overloading, so this
voluntary approach is the most efficient.
b. it would be more efficient if the electric company raised its rates for electricity at peak times.
c. it would be more efficient to have a lottery to decide who had to cut back their use of electricity
at peak times.
d. it would be more efficient to force everyone to cut their usage of electricity by the same amount.
ANS: B PTS: 1 DIF: 3 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

73. On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these
times, electric companies may ask people to voluntarily cut back on their use of electricity. On these
days, electricity is
a. excludable, but nonrival in consumption.
b. not excludable, but rival in consumption.
c. excludable and rival in consumption.
d. not excludable and nonrival in consumption.
ANS: C PTS: 1 DIF: 3 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Analytical

74. Which of the following statements is correct?

a. Common resources are nonexcludable and nonrival in consumption.
b. Uncongested toll roads are an example of the free rider problem.
c. When African elephants were privatized, the survival of the species improved.
d. Fish in the ocean are excludable but nonrival in consumption.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Tragedy of the Commons | Property rights
MSC: Analytical

75. Ten friends who love to ski decide to pool their financial resources and equally share the cost of a
one-week time-share condominium in Alta, Utah. Suppose that the lift lines at the ski resort become
more congested when the ten additional people start to ski. Which of the following statements is not
correct?
a. Use of the ski resort by the ten new skiers will yield a negative externality.
b. The ski resort can reduce the congestion externality by raising lift ticket prices.
c. An increase in lift ticket prices could be viewed as a corrective tax on the externality of
congestion.
d. Each of the ten friends would have been better off staying at home.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Analytical

76. Phil owns 10 acres of beautiful wooded land. When Phil decides to move to be closer to his grand-
children, he donates the land to the state with the understanding that the land will be used as a state
park that anyone may use without paying any fees. This state park
a. will tend to be overused because it is nonexcludable.
b. is a common resource when it becomes crowded on sunny summer weekends.
c. is rival in consumption when it becomes crowded on sunny summer weekends.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability | Rivalry in consumption MSC: Applicative

77. Phil owns 10 acres of beautiful wooded land. When Phil decides to move to be closer to his grand-
children, he donates the land to the state with the understanding that the land will be used as a state
park. Phil wants an efficient way to prevent overcrowding at the park, so he should require
a. that no park visitors ever pay an entry fee.
b. that the park limit the number of visitors to 500 per day, without an entry fee.
c. an entry fee be charged on summer weekend days when many people tend to visit the park
d. an entry fee be charged every day of the year, regardless of the number of people who would like
to visit the park.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Excludability | Rivalry in consumption MSC: Applicative

78. A textbook is a
a. private good and the knowledge that one gains from reading the book is a common resource.
b. private good and the knowledge that one gains from reading the book is a public good.
c. common resource and the knowledge that one gains from reading the book is a public good.
d. common resource and the knowledge that one gains from reading the book is a private good.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods | Public goods MSC: Interpretive

79. An economics professor, upset about the rising cost of textbooks, proposed that his department pur-
chase 50 copies of a statistics book so the students in the statistics class would not have to purchase
their own books but rather could borrow a book for the semester and then return it for the next class
to use. Which of the following strategies would not prevent a common resource problem with the
textbooks?
a. Students will be required to pay a deposit for the textbook, which is refundable at the end of the
semester when the book is returned in good condition.
b. The textbooks are placed in a common area of the department so students can borrow and return
them as needed.
c. Students must sign a form agreeing to return the book or pay a fine equal to the replacement cost
of the book.
d. The textbooks are placed in the professor’s office and will only be given to students who are
registered members of the class. These students will not receive their final course grades until
the books are returned.
ANS: B PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

80. Mitch hunts deer. His shotgun is

a. a private good and the deer he hunts are common resources.
b. a private good and the deer he hunts are public goods.
c. rival in consumption and the deer he hunts are not rival in consumption.
d. not rival in consumption and the deer he hunts are not rival in consumption.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods | Common resources MSC: Interpretive
Figure 11-1
Rival in Consumption?
Yes No

Yes A B

Excludable?

No C D

81. Refer to Figure 11-1. The box labeled A represents

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: A PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods MSC: Interpretive

82. Refer to Figure 11-1. The box labeled B represents

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: B PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Natural monopoly MSC: Interpretive

83. Refer to Figure 11-1. The box labeled C represents

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: C PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

84. Refer to Figure 11-1. The box labeled D represents

a. private goods.
b. club goods.
c. common resources.
d. public goods.
ANS: D PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

85. Refer to Figure 11-1. The more Jane uses good x, the less of that good there is for other people to
use. Neither Jane nor anyone else can be prevented from using the good. Good x is an example of
the type of good that belongs in
a. Box A, which represents private goods.
b. Box B, which represents common resources.
c. Box C, which represents common resources.
d. Box D, which represents public goods.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

86. Refer to Figure 11-1. Cable TV is an example of the type of good represented by Box
a. A.
b. B.
c. C.
d. D.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Natural monopoly MSC: Interpretive

87. Refer to Figure 11-1. A tornado siren in a small town is an example of the type of good represent-
ed by Box
a. A.
b. B.
c. C.
d. D.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

88. Refer to Figure 11-1. A ham sandwich is an example of the type of good represented by Box
a. A.
b. B.
c. C.
d. D.
ANS: A PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods MSC: Interpretive

89. Refer to Figure 11-1. For which two boxes is it the case that externalities arise because something
of value has no price attached to it?
a. Box A and Box B
b. Box A and Box C
c. Box B and Box D
d. Box C and Box D
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities | Public goods | Common resources MSC: Interpretive

90. Refer to Figure 11-1. Which of the following statements is correct?

a. A congested toll road is an example of the type of good represented by Box B.
b. An uncongested toll road is an example of the type of good represented by Box D.
c. A congested nontoll road is an example of the type of good represented by Box C.
d. An uncongested nontoll road is an example of the type of good represented by Box A.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

91. Refer to Figure 11-1. Which of the following items is not an example of the type of good repre-
sented by Box D?
a. a mathematical theorem
b. an uncongested toll road
c. national defense
d. fighting poverty
ANS: B PTS: 1 DIF: 3 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

92. Refer to Figure 11-1. Which of the following items is not a clear-cut example of the type of good
represented by Box A?
a. a pair of pants
b. a lighthouse
c. a bicycle
d. a cattle ranch
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Private goods MSC: Applicative

93. Refer to Figure 11-1. Which of the following items is not a clear-cut example of the type of good
represented by Box D?
a. a fireworks display in a town with many residents
b. national defense
c. general knowledge
d. a lighthouse
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

94. Refer to Figure 11-1. Once good x is provided, policymakers need to be concerned about how
much of it is used. Good x is an example of the type of good represented by Box
a. A.
b. B.
c. C.
d. D.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

95. Pollution is a
a. problem that is entirely unrelated to the parable called the Tragedy of the Commons.
b. problem that cannot be remedied with regulations or corrective taxes.
c. negative externality that can be viewed as a public-goods problem.
d. negative externality that can be viewed as a common-resource problem.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

96. The idea of requiring motorists to pay to use the busiest streets in a city
a. has been proposed by many public officials, but to date the idea never has been tried in a major
city anywhere in the world.
b. was tried in New York City in the 1990s, but the result was more — not less — congestion on
busy streets, and the experiment was short-lived.
c. reflects the fact that a congested road is a public good.
d. reflects the fact that a congested road is a common resource.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Public policy MSC: Interpretive

97. A city street is

a. always a public good, whether or not it is congested.
b. a public good when it is congested, but it is a common resource when it is not congested.
c. a common resource when it is congested, but it is a public good when it is not congested.
d. always a common resource, whether or not it is congested.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Public goods MSC: Interpretive

98. It would always be a mistake to view

a. many species of animals as common resources.
b. a road as a public good.
c. national defense as a common resource.
d. a fireworks display as a public good.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Public goods MSC: Interpretive

99. It would always be a mistake to view

a. a tornado siren as a public good.
b. a congested road as a common resource.
c. cable TV as a common resource.
d. a mathematical theorem as a public good.
ANS: C PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Public goods MSC: Interpretive

100. Which of the following statements is correct?

a. The efficient provision of private goods is intrinsically more difficult than the efficient provision
of public goods.
b. The efficient provision of public goods is intrinsically more difficult than the efficient provision
of private goods.
c. Private markets provide quantities of public goods that exceed the socially-efficient quantities of
those goods.
d. Private decision makers utilize quantities of common resources that fall short of the
socially-efficient quantities of those resources.
ANS: B PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Public goods MSC: Interpretive

101. The enclosure movement in England in the 17th century represented an attempt to transform
a. a public good into a private good.
b. a private good into a public good.
c. a private good into a common resource.
d. a common resource into a private good.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Private goods MSC: Interpretive

102. The failure of markets to adequately protect the environment can viewed either as a problem of
a. externalities or as a problem of common resources.
b. externalities or as a problem of private goods.
c. the overprovision of public goods or as a problem of the underprovision of private goods.
d. club goods or as a problem that arises when the quantity of excludable goods exceeds the
socially-efficient quantity.
ANS: A PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources | Externalities MSC: Interpretive

103. A regional lobster management board recently proposed a five-year moratorium on lobster fishing in
the Atlantic waters south of Cape Cod based on a study of the lobster population. Which of the fol-
lowing statements is not correct?
a. Lobsters are rival but not excludable.
b. The lobster population is an example of the tragedy of the commons.
c. Reducing the quota on the number of lobsters any fisher can catch would have a protective effect
on the lobster population.
d. If left unregulated, the lobster population will likely increase.
ANS: D PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative
THE IMPORTANCE OF PROPERTY RIGHTS

1. Markets do not ensure that the air we breathe is clean because

a. clean air has no value.
b. the government prevents markets from doing so.
c. property rights are not well established for clean air.
d. clean air is impossible to produce .
ANS: C PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Interpretive

2. Property rights are well established for

a. private goods.
b. public goods.
c. common resources.
d. both (b) and (c).
ANS: A PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Understanding and applying economic models
TOP: Property rights MSC: Interpretive

3. Consider the following problems: overcrowded public highways, overfishing in the ocean, polluted
air, and the near-extinction of the wild rhinoceros. What do these problems have in common?
a. Private markets could easily solve them if governments left the markets alone.
b. They would all go away if the government sponsored an intensive public-information campaign.
c. They are all the result of a failure to establish clear property rights over something of value.
d. They are all the result of a failure of corrective taxes.
ANS: C PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Understanding and applying economic models
TOP: Property rights MSC: Interpretive

4. Markets fail to allocate resources efficiently when

a. prices fluctuate.
b. people who have property rights abuse their privileges.
c. property rights are not well established.
d. the government refuses to intervene in private markets.
ANS: C PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Applicative

5. When the absence of property rights causes a market failure, the government can potentially solve the
problem
a. by clearly defining property rights.
b. through regulation.
c. by supplying the good itself.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Analytical

6. A common theme among examples of market failure is

a. the good being provided harms society in some systematic way.
b. some item of value does not have an owner with the legal authority to control it.
c. cost-benefit analysis will show that private markets should provide the goods and services.
d. government intervention decreases the social benefits.
ANS: B PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Interpretive

7. When property rights are not well established,

a. private goods become public goods.
b. markets fail to allocate resources efficiently.
c. the distribution of private goods is unfair.
d. government resources are used inefficiently.
ANS: B PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Analytical

8. Which of the following represents a potential solution to the problem of environmental pollution?
a. corrective taxes
b. well established property rights
c. government regulation
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Analytical

9. Governments can grant private property rights over resources that were previously viewed as public,
such as fish or elephants. Why would governments want to do so?
a. to prevent overuse
b. to decrease taxes
c. to fight poverty
d. to increase consumption
ANS: A PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Analytical

10. In which of the following examples are property rights not well established?
a. Jim chooses to ride his bike to work rather than drive his car.
b. Groups of students play loud music in the open area between the dorms.
c. Aniella reads a book on her patio.
d. Executives discuss corporate strategy in the company boardroom.
ANS: B PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Analytical

11. Which of the following statements is correct?

a. The establishment of property rights sometimes gives rise to market failure.
b. The absence of property rights sometimes gives rise to market failure.
c. In the context of public goods, the Coase theorem implies that total surplus in some markets can
be improved by the elimination of property rights.
d. Government regulation of private behavior, in response to market failure, can never improve
social well-being.
ANS: B PTS: 1 DIF: 2 REF: 11-4
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Property rights MSC: Interpretive
TRUE/FALSE

1. When goods are available free of charge, the market forces that normally allocate resources in our
economy are absent.
ANS: T PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Interpretive

2. Free goods are usually efficiently allocated without government intervention.

ANS: F PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Market failure MSC: Interpretive

3. Most goods in our economy are allocated in markets, where buyers pay for what they receive and
sellers are paid for what they provide.
ANS: T PTS: 1 DIF: 1 REF: 11-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private goods MSC: Applicative

4. Government intervention cannot improve the allocation of resources for goods that do not have prices
attached to them.
ANS: F PTS: 1 DIF: 2 REF: 11-0
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Interpretive

5. A good that is excludable but not rival is known as a club good.

ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Natural monopoly MSC: Definitional

6. National Public Radio would be considered a club good.

ANS: F PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Natural monopoly MSC: Interpretive

7. Concerts in arenas are not excludable because it is virtually impossible to prevent someone from see-
ing the show.
ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability MSC: Applicative

8. A pair of jeans is rival but non-excludable.

ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry in consumption MSC: Applicative

9. A good that is rival in consumption is one that someone can be prevented from using if she did not
pay for it.
ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry in consumption MSC: Definitional

10. A good that is excludable is one that someone can be prevented from using if she did not pay for it.
ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry in consumption MSC: Definitional

11. Some goods can be classified as either public goods or private goods depending on the circumstances.
ANS: T PTS: 1 DIF: 2 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods | Private goods MSC: Interpretive

12. Roads can be considered either public goods or common resources, depending on how congested they
are.
ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods | Common resources MSC: Applicative

13. You and your friends watch a movie in your bedroom. For you and your friends, the enjoyment that
you get from watching the movie is not rival in consumption.
ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Rivalry MSC: Interpretive

14. You and your friends eat potato chips in your bedroom. For you and your friends, the potato chips
are rival in consumption.
ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Rivalry MSC: Interpretive

15. All goods that are excludable are also rival in consumption, but not all goods that are rival in con-
sumption are excludable.
ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry MSC: Definitional

16. Common resources and public goods have in common that they are not excludable and they are not
rival in consumption.
ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry MSC: Definitional

17. Private goods and club goods have in common that they are excludable, but are different in that pri-
vate goods are rival while club goods are not rival in consumption.
ANS: T PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry MSC: Definitional

18. When one person enjoys the benefit of a tornado siren, she reduces the benefit to others.
ANS: F PTS: 1 DIF: 1 REF: 11-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Rivalry in consumption MSC: Applicative

19. A free-rider is someone who receives the benefit of a good but avoids paying for it.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Free riders MSC: Definitional

20. A free rider is a person who pays for a good but does not receive the benefit of it.
ANS: F PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Free riders MSC: Definitional

21. The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them
is impossible.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Free riders MSC: Applicative

22. When free riders are present in a market, the market generally fails to provide the efficient outcome.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Free riders MSC: Interpretive

23. Even economists who advocate small government agree that national defense is a good that the gov-
ernment should provide.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Applicative

24. Although national defense is currently a public good, economists who advocate small government
generally agree that the U.S. should privatize national defense to increase the efficiency of the good.
ANS: F PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Public goods MSC: Interpretive

25. One benefit of the patent system is that it encourages the production of technical knowledge.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Excludability MSC: Applicative

26. Government agencies, such as the National Science Foundation, subsidize basic research because in
the absence of a subsidy too little research would be conducted.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Applicative

27. Because the benefits of basic research are obvious and easy to measure, it is likely that the public
sector pays for the right amount and the right kinds of basic research.
ANS: F PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Public policy MSC: Interpretive

28. In some cases the government can make everyone better off by raising taxes to pay for certain goods
that the market fails to provide.
ANS: T PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The role of government TOP: Public goods
MSC: Interpretive

29. The free-rider problem makes it unlikely that poverty will be entirely eliminated through private
charity.
ANS: T PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Free riders MSC: Interpretive

30. Advocates of antipoverty programs claim that fighting poverty is a public good.
ANS: T PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods MSC: Applicative

31. Private markets usually provide lighthouses because ship captains have the incentive to navigate us-
ing the lighthouse and therefore will pay for the service.
ANS: F PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods MSC: Interpretive

32. Some goods, such as lighthouses, can switch between being public goods and being private goods
depending on the circumstances.
ANS: T PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: Understanding and applying economic models
TOP: Public goods | Private goods MSC: Interpretive

33. A study that compares the costs and benefits to society of providing a public good is called externali-
ty analysis.
ANS: F PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Definitional

34. In determining whether and how much of a public good to provide, cost-benefits analysts use the
same type of price signals for public goods as are readily available for private goods.
ANS: F PTS: 1 DIF: 1 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Definitional

35. Economists argue that we can calculate the value of a human life by observing voluntary risks that
people take every day.
ANS: T PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Applicative

36. If we can conclude that human life has a finite value, cost-benefit analysis can lead to solutions in
which human life is worth less than the cost of a potential project.
ANS: T PTS: 1 DIF: 2 REF: 11-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Cost-benefit analysis MSC: Interpretive

37. Aristotle writes, “What is common to many is taken least care of, for all men have greater regard for
what is their own than for what they possess in common with others.” In this statement, Aristotle is
referring to the free-rider problem that occurs when a person receives the benefit of a good without
paying for it.
ANS: F PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Interpretive

38. One solution to the “Tragedy of the Commons” is to turn the common resource into a private good.
ANS: T PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Interpretive

39. An example of the “Tragedy of the Commons” is litter in the picnic area of a local park.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Applicative

40. London drivers who choose to drive in “congestion zones” pay a tax designed to reduce traffic con-
gestion.
ANS: T PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Applicative

41. Governments that chose to make endangered elephants private goods have met with more success
protecting elephants than governments that chose to make killing elephants illegal.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

42. One person's use of common resources does not reduce the enjoyment other people receive from the
resource.
ANS: F PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

43. If Dave and Jesse are the only two fishermen in town and neither is bothered by the other's fishing,
the lake they fish in is not a common resource.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Common resources MSC: Interpretive

44. One possible solution to the problem of protecting a common resource is to convert that resource to a
private good.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Interpretive

45. Tolls are not effective in altering people's incentives to drive during rush hour.
ANS: F PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Applicative

46. The profit motive that stems from private ownership means that elephant populations are best pro-
tected as common resources.
ANS: F PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources MSC: Interpretive

47. In the Tragedy of the Commons, joint action among the individual citizens would be necessary to
solve their common resource problem unless the government intervenes.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Tragedy of the Commons MSC: Applicative

48. Depending on congestion, national parks can be either a common resource or a public good.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Common resources | Public goods MSC: Interpretive

49. Pollution is a negative externality, but it is not appropriate to view the problem of pollution as a
common-resource problem.
ANS: F PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities | Common resources MSC: Interpretive

50. The pollution market failure is an example of the free rider problem.
ANS: F PTS: 1 DIF: 1 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Negative externalities | Common resources MSC: Interpretive

51. When a highway is congested, giving rise to negative externalities, it is appropriate to view the high-
way as a common resource.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Common resources MSC: Interpretive

52. Nontoll roads can be either public goods or common resources, depending upon the degree of con-
gestion.
ANS: T PTS: 1 DIF: 2 REF: 11-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Public goods | Common resources MSC: Interpretive

53. Markets may fail to allocate resources efficiently when property rights are not well established.
ANS: T PTS: 1 DIF: 1 REF: 11-4
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Property rights MSC: Interpretive

SHORT ANSWER

1. Place each of the following in the correct location in the table.

Rival?
Yes No
Yes Private Goods Club Goods
Excludable?
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
ANS:
Rival?
Yes No
Private Goods Club Goods
• Ice-cream cones • Fire protection
Yes
• Clothing • Cable TV
• Congested toll roads • Uncongested toll roads
Excludable?
Common Resources Public Goods
• Fish in the ocean • National defense
No
• The environment • Knowledge
• Congested nontoll roads • Uncongested nontoll roads
PTS: 1 DIF: 1 REF: 11-1 NAT: Analytic
LOC: The study of economics and definitions in economics
TOP: Excludability | Rivalry in consumption MSC: Applicative

2. The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking
firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources
to the creation of knowledge. How does the U.S. government correct for this apparent market failure?
ANS:
The government assigns and protects the property rights of the producers of specific, technological
knowledge through patents. The inventor will obtain much of the benefit of his invention. The U.S.
government also subsidizes basic research in many different fields.
PTS: 1 DIF: 1 REF: 11-2 NAT: Analytic
LOC: The role of government TOP: Public goods
MSC: Applicative

3. Some advocates of antipoverty programs claim that fighting poverty is a public good. Describe why
government intervention may be necessary to reduce poverty.
ANS:
Eliminating poverty is not a good that the private market can provide. No single individual can solve
the problem of poverty, and those who do not donate to charity can free-ride on the generosity of
others. If we all prefer to live in a society without poverty, taxing the wealthy to raise the living
standards of the poor may be able to make everyone better off.
PTS: 1 DIF: 1 REF: 11-2 NAT: Analytic
LOC: The role of government TOP: Public goods
MSC: Applicative

4. 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 without the help of government?
ANS:
It is possible that everyone can agree that the roads are too crowded, but no one is willing to make the
sacrifice to stay home to help solve the congestion problem. The private incentive to fix the problem
is small, so government policies such as tolls and gasoline taxes may improve social welfare.
PTS: 1 DIF: 1 REF: 11-3 NAT: Analytic
LOC: The role of government TOP: Common resources
MSC: Interpretive

5. Why do wild salmon populations face the threat of extinction while goldfish populations are in no
such danger?
ANS:
No one owns the wild salmon, while private individuals own goldfish. The profit motive leads to
different allocations of the resources. Salmon fishermen have an individual incentive to catch as
many salmon as possible before someone else does. Pet shop owners have a profit incentive to breed
goldfish to sell to consumers.
PTS: 1 DIF: 2 REF: 11-3 NAT: Analytic
LOC: Markets, market failure, and externalities TOP: Common resources
MSC: Interpretive

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