True/False
Indicate whether the
statement is true or false.
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1.
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A public good is both rival and excludable.
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2.
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A common resource is neither rival nor excludable.
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3.
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An apple sold in a grocery store is a private good.
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4.
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Goods produced by a natural monopoly are free to the consumer of the
good.
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5.
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Private markets have difficulty providing public goods due to the free rider
problem.
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6.
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If the local government sells apples at a roadside stand, the apples are public
goods because they are provided by the government.
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7.
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Public goods are related to positive externalities because the potential buyers
of public goods ignore the external benefits those goods provide to other consumers when they make
their decision about whether to purchase public goods.
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8.
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Common resources are overused because common resources are free to the
consumer.
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9.
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The socially optimal price for a fishing licence is zero.
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10.
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Car drivers do not take into consideration the external costs they impose when
making a journey which leads to a socially inefficient equilibrium number of journeys made.
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11.
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Common resources are related to negative externalities because consumers of
common resources ignore the negative impact of their consumption on other consumers of the common
resource.
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12.
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If someone owned the property rights to clean air, that person could charge for
the use of the clean air in a market for clean air and, thus, air pollution could be reduced to the
optimal level.
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13.
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A fireworks display in the centre of large private park is a good provided by
natural monopoly.
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14.
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When the government uses cost-benefit analysis to decide whether to provide a
public good, the potential benefit of the public good can easily be established by surveying the
potential consumers of the public good.
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15.
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National defence is a classic example of a common resource.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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16.
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If one person's consumption of a good diminishes other people's use of
the good, the good is said to be
a. | rival. | c. | a common resource. | b. | a good produced by a natural
monopoly. | d. | excludable. |
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17.
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A public good is
a. | neither rival nor excludable. | c. | both rival and
excludable. | b. | rival but not excludable. | d. | not rival but excludable. |
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18.
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A private good is
a. | rival but not excludable. | c. | both rival and
excludable. | b. | not rival but excludable. | d. | neither rival nor excludable. |
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19.
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A good produced by a natural monopoly is
a. | rival but not excludable. | c. | not rival but
excludable. | b. | neither rival nor excludable. | d. | both rival and
excludable. |
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20.
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A common resource is
a. | not rival but excludable. | c. | rival but not
excludable. | b. | both rival and excludable. | d. | neither rival nor excludable. |
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21.
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Public goods are difficult for a private market to provide due to
a. | the rivalness problem. | c. | the Tragedy of the Commons. | b. | the public goods
problem. | d. | the free-rider
problem. |
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22.
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Suppose each of 20 neighbours on a street values street repairs at €3,000.
The cost of the street repair is €40,000. Which of the following statements is true?
a. | It is efficient for the government to tax the residents €2,000 each and repair
the road. | b. | It is efficient for each neighbour to pay €3,000 to repair the section of
street in front of his/her home. | c. | None of these answers are
true. | d. | It is not efficient to have the street repaired. |
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23.
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A free rider is a person who
a. | receives the benefit of a good but avoids paying for it. | b. | pays for a good but
fails to receive any benefit from the good. | c. | fails to produce goods but is allowed to
consume goods. | d. | produces a good but fails to receive payment for the
good. |
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24.
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Which of the following is an example of a public good?
a. | hot dogs at a picnic | c. | national defence | b. | whales in the ocean | d. | apples on a tree in a public
park |
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25.
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A positive externality affects market efficiency in a manner similar to a
a. | rival good. | c. | private good. | b. | public good. | d. | common
resource. |
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26.
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Suppose that requiring motorcycle riders to wear helmets reduces the probability
of a motorcycle fatality from 0.3 percent to 0.2 percent over the lifetime of a motorcycle rider and
that the cost of a lifetime supply of helmets is €500. It is efficient for the government to
require riders to wear helmets if human life is valued at
a. | €100 or more. | b. | €150 or more | c. | €500 or
more. | d. | €50,000 or more. | e. | €500,000 or
more. |
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27.
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A negative externality affects market efficiency in a manner similar to
a. | an excludable good. | c. | a common resource. | b. | a private good. | d. | a public good. |
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28.
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When governments employ cost-benefit analysis to help them decide whether to
provide a public good, measuring benefits is difficult because
a. | there are no benefits to the public since a public good is not
excludable. | b. | the benefits are infinite because a public good is not rival and an infinite amount
of people can consume it at the same time. | c. | one can never place a value on human life or
the environment. | d. | respondents to questionnaires have little incentive to tell the
truth. |
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29.
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Which of the following is an example of a common resource?
a. | a fireworks display | c. | iron ore | b. | national defence | d. | a national park |
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30.
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The Tragedy of the Commons is a parable that illustrates why
a. | common resources are overconsumed. | c. | private goods are
underconsumed. | b. | public goods are underproduced. | d. | natural monopolies overproduce
goods. |
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31.
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Which of the following are potential solutions to the problem of air
pollution?
a. | Grant rights of the clean air to citizens so that firms must purchase the right to
pollute. | b. | Auction off pollution permits. | c. | Regulate the amount of pollutants that firms
can put in the air. | d. | all of these
answers |
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32.
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When markets fail to allocate resources efficiently, the ultimate source of the
problem is usually
a. | government regulation. | b. | that prices are not low enough so firms
overproduce. | c. | that prices are not high enough so people overconsume. | d. | that property rights
have not been well established. |
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33.
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If a person can be prevented from using a good, the good is said to be
a. | excludable. | c. | a public good. | b. | a common resource. | d. | rival. |
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34.
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A congested toll road is
a. | a good produced by a natural monopoly. | c. | a public good. | b. | a private
good. | d. | a common
resource. |
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35.
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A person who regularly watches BBC television programmes in the UK but fails to
pay their TV licence fee is known as
a. | excess baggage. | b. | a free rider. | c. | a costly
rider. | d. | a common resource. | e. | an unwelcome
rider. |
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