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1. 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.
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c
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2. For most goods in an economy, the primary signal that guides the decisions of buyers and sellers is
a. advertising.
b. quality.
c. reputation.
d. price.
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d
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3. 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
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c
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4. If a particular good is available free of charge, then
a. the good must be provided by nature.
b. the good must be provided by the government.
c. the private market cannot ensure an efficient allocation of resources in the market for that good.
d. government policy is incapable of increasing total surplus in the market for that good.
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c
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5. 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.
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c
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6. 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.
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b
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7. 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.
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c
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8. 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.
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b
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9. 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.
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c
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10. Bob owns 5 acres of land. Bob sells the land to a real estate developer who builds a subdivision with 10 houses. The land is an example of a good that is
a. both rival in consumption and excludable.
b. neither rival in consumption nor excludable.
c. excludable, but not rival in consumption.
d. rival in consumption, but not excludable.
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a
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11. 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.
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c
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12. A television broadcast is an example of a good that is
a. private.
b. not rival in consumption.
c. social.
d. normal.
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b
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13. 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.
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a
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14. Which of the following would not be considered a private good?
a. a pair of scissors
b. a pair of shoes
c. an SUV
d. cable TV service
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d
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15. 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
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d
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16. Which of the following goods is nonrival in consumption and excludable?
a. Grand Canyon National Park on a rainy, cool day
b. Disney World on a rainy, cool day
c. a crowded public beach on a sunny, warm day
d. White Mountain ski resort on a sunny, mild day
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b
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17. 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. Visitors 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.
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d
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18. 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. Visitors 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.
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c
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19. 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. Visitors 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.
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a
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20. The Great Lakes are
a. private goods.
b. club goods.
c. common resources.
d. public goods.
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c
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21. A streetlight is a
a. private good.
b. club good.
c. common resource.
d. public good.
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d
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22. At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a
a. private good.
b. club good.
c. common resource.
d. public good.
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c
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23. At the local park there is a playground that anyone may use. There is rarely anyone using the playground, 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.
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d
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24. Which of the following statements about private goods and public goods is correct?
a. Private goods and public goods are both excludable.
b. Private goods and public goods are both rival in consumption.
c. Private goods are not excludable and public goods are excludable.
d. Private goods are rival in consumption and public goods are not excludable.
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d
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25. 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.
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c
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26. 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.
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c
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27. 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 defense is
a. excludable.
b. not excludable.
c. rival in consumption.
d. not rival in consumption.
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d
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28. A sidewalk runs across Jermichael’s front yard near the street. By law, anyone has the right to use the sidewalk. When Jermichael shovels the sidewalk after a heavy snowstorm,
a. he is providing a good/service that is excludable.
b. he is a free rider.
c. those who walk on the sidewalk are using a club good.
d. he is providing a good/service that is not rival and not excludable.
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d
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29. A free-rider problem exists for any good that is not
a. rival in consumption.
b. a private good.
c. free.
d. excludable.
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d
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30. On the Fourth of July, there is no fireworks display in the small town of Yankeeville, even though it would be efficient for such a display to be produced. Which of the following statements is correct?
a. The lack of a fireworks display in Yankeeville arises because of an externality.
b. The lack of a fireworks display in Yankeeville is a case of market failure.
c. In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately rational but socially inefficient.
d. All of the above are correct.
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d
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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.
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c
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32. Even economists who advocate small government agree that
a. national defense is a public good and that the government should provide it.
b. national defense is a common resource and that the government should provide it.
c. national defense is a public good, but many of them believe that it should be provided by private firms rather than by the government.
d. national defense is a common resource, but many of them believe that it should be provided by private firms rather than by the government.
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a
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33. 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.
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c
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34. If the government decides to build a new highway, the first step would be to conduct a study to determine the value of the project. The study is called a
a. budget analysis.
b. project analysis.
c. reimbursement analysis.
d. cost-benefit analysis.
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d
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35. 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.
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b
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36. 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.
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a
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37. 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.
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d
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38. 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 represents
a. a common resource problem.
b. a public good.
c. a natural monopoly.
d. All of the above are correct.
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a
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39. 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.
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b
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40. 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
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d
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41. 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.
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a
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42. The Tragedy of the Commons for sheep grazing on common land can be eliminated by the government 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.
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d
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43. 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.
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b
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44. The parable called the Tragedy of the Commons applies to goods such as
a. fire protection and cable TV.
b. tornado sirens and basic research.
c. clean air and clean water.
d. antipoverty programs and national defense.
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c
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45. When Rick uses a common resource and diminishes other people’s enjoyment of it, he creates
a. a free rider problem.
b. a negative externality.
c. a nonrenewable resource.
d. general knowledge.
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b
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46. A neighborhood voted to develop a vacant lot into a vegetable garden. All of the neighbors worked the land and sowed the seeds. A few neighbors picked and ate the produce before the other neighbors had a chance. Which of the following could solve this example of the Tragedy of the Commons?
a. The neighborhood divides the lot into equal size plots and each family can plant and harvest only on their plot.
b. The neighborhood continues to work the land and sow the seeds as a group, but sells all of the produce to willing buyers and reinvests the proceeds into the garden for the next year.
c. The neighborhood decides to stop gardening on this land because there is no equitable way to allocate the produce.
d. Both a and b are possible solutions to this example of the Tragedy of the Commons
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d
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47. 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.
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a
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48. 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.
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d
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49. 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.
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c
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50. 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.
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a
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51. 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.
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d
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52. Markets fail to allocate resources efficiently when
a. demanders and suppliers cannot agree on a price.
b. goods are rival in consumption and excludable.
c. property rights are not well established.
d. too many buyers and sellers exist in the same market.
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c
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53. 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
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a
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54. 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.
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d
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