Question 1

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

Accepted Answer

The answer of Explain the externality generated when a shepherd...

Question 2

A commodity or service whose consumption by one person does not preclude others from also consuming it is called a
A)private good.
B)public good.
C)Giffen good.
D)Coase good.

Accepted Answer

A public good is a commodity or service that is non-excludable, meaning that individuals cannot be prevented from using it, and non-rivalrous, meaning that one person's use of the good does not diminish the ability of others to use it as well. Examples of public goods include national defense and street lighting. Private goods, on the other hand, are both excludable and rival in consumption. A Giffen good is a rare type of inferior good in which an increase in the good's price leads to an increase in its quantity demanded, violating the law of demand. A Coase good is a type of public good that can be turned into a private good through bargaining between potential users.

Question 3

Over-fishing of common fishing grounds happens because fishing grounds are a common property and social and private incentive are the same.

Accepted Answer

It is the fact that social and private incentives diverge that creates the problem. The profit-maximizing quantity of fish for the fishermen exceeds the social optimal quantity of fish that will maintain the stock. Over-fishing (and maybe extinction)will result.

Question 4

In the case of a good that has no exclusion and no rivalry, private markets fail because
A)of free-ridership.
B)this is a natural monopoly.
C)profit is driven down to zero.
D)the quantity produced will exceed the social optimum.

Accepted Answer

In the absence of exclusion and rivalry, individuals have an incentive to free-ride, meaning they can enjoy the benefits of the good without paying for it. This leads to underproduction of the good in the private market, as firms cannot capture the full value of the good and make a profit.

Question 5

When majority rule voting is used to determine whether to purchase a public good,
A)the efficient outcome is assured.
B)the median voter gets her way.
C)the sum of the marginal benefits must equal marginal cost.
D)the marginal benefit of the good to the median voter equals the good's marginal cost.

Accepted Answer

In majority rule voting, the option that receives the most votes is selected, which means the outcome is determined by the preferences of the majority of voters. The median voter theorem suggests that the option preferred by the median voter, who is the one who divides the voters evenly in terms of preferences, will be selected. Thus, the answer is B, as the outcome is determined by the preferences of the median voter. However, this does not guarantee an efficient outcome or that the sum of marginal benefits equals marginal cost.

Question 6

The total demand for a public good is found by
A)horizontally summing all individual demands.
B)vertically summing all individual demands.
C)finding the demand from the median voter.
D)dividing the marginal cost of the good by the number of voters.

Accepted Answer

The total demand for a public good is found by vertically summing all individual demands because each individual's valuation of the public good at each quantity is added together to find the total value to society at that quantity.

Question 7

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

Accepted Answer

The answer of Explain why the social demand curve for...

Question 8

A public good in which exclusion is possible is called
A)an exclusive good.
B)a common good.
C)an impure good.
D)a club good.

Accepted Answer

A club good is a public good in which exclusion is possible. Examples include private parks, satellite TV, or golf clubs, as they can exclude non-members from accessing their services or benefits.

Question 9

The median voter votes yes for a project if
A)the value of the project for him is larger than the tax he needs to pay.
B)the value of the project for him is smaller than the tax he needs to pay.
C)the total benefits are positive.
D)the total cost is zero.

Accepted Answer

The median voter will vote yes if the value of the project for them is larger than the tax they need to pay. This is because the median voter is assumed to be rational and will only support a project if it benefits them personally. If the value of the project exceeds the associated tax, then it is rational for the median voter to vote yes.

Question 10

Markets tend to produce too little of an excludable public good because
A)transaction costs are high.
B)of the lack of rivalry.
C)these goods are depletable.
D)All of the above.

Accepted Answer

Excludable public goods possess the characteristics of being non-rivalrous but excludable, therefore, the market can only charge a price for one individual’s use of the good, and thus individuals will consume less of the good than is socially desirable.

Question 11

Which of the following goods has the property of rivalry?
A)national defense
B)a highway
C)air to breath
D)an outdoor movie screening

Accepted Answer

The answer of Which of the following goods has the...

Question 12

Suppose a city has 20 citizens. The first 10 citizens each derive marginal benefit from traffic lights according to the function MB = 10 - Q, and the remaining 10 citizens each derive marginal benefit from traffic lights according to the function MB = 20 - Q. If traffic lights cost $20 each to produce, what is the efficient quantity of traffic lights?
A)14 traffic lights
B)16 traffic lights
C)12 traffic lights
D)9 traffic lights

Accepted Answer

The answer of Suppose a city has 20 citizens. The...

Question 13

When majority rule voting is used to determine whether to purchase a public good,
A)the efficient outcome is not assured.
B)the median voter gets her way.
C)the sum of the marginal benefits is ignored.
D)All of the above.

Accepted Answer

Majority rule voting for public goods often does not assure efficiency because it may not account for the intensity of individual preferences, leading to outcomes where the median voter's preference prevails and the aggregate of marginal benefits across all individuals is not maximally utilized.

Question 14

Which of the following goods is more likely to be excludable?
A)a chocolate bar
B)a concert at Times Square
C)national defense
D)ocean breeze

Accepted Answer

A chocolate bar is excludable because it can be easily kept from those who do not pay for it.

Question 15

Which of the following is NOT a club good?
A)cable television
B)a rock concert
C)a country club
D)a baseball bat

Accepted Answer

A club good is a type of good where the benefit obtained by one person can also be obtained by others. Cable television, a rock concert, and a country club are all examples of club goods because they provide benefits to a select group of people who have access to them. However, a baseball bat is not a club good because its use is exclusive to the individual owner and cannot be shared with others in the same way as the other options.

Question 16

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the
A)marginal benefit to the median voter.
B)marginal benefit to each individual.
C)sum of all individual marginal benefits.
D)sum of all individual marginal benefits divided by the number of voters.

Accepted Answer

The efficient quantity of a pure public good is achieved when the marginal cost of producing the good equals the sum of all individual marginal benefits. This is because a pure public good is non-excludable and non-rivalrous, meaning that one person's consumption does not reduce the availability for others, and everyone can benefit from it simultaneously. Therefore, the efficient production level considers the total benefits to all individuals, not just to any single individual or an average across individuals.

Question 17

Explain why state governments may charge a fee for beach access to address the commons problem.

Accepted Answer

The answer of Explain why state governments may charge a...

Question 18

Suppose 10 citizens each derive marginal benefit from traffic lights according to the function MB = 10 - Q. If traffic lights cost $10 each to produce, what is the efficient quantity of traffic lights?
A)9 traffic lights
B)12 traffic lights
C)8 traffic lights
D)1 traffic light

Accepted Answer

The answer of Suppose 10 citizens each derive marginal benefit...

Question 19

The efficient quantity of a public good occurs when the marginal cost of providing that good equals the sum of the marginal benefits to all individuals.

Accepted Answer

The demand for the public good is found by vertically summing so that we have the sum of the marginal benefits at each quantity.

Question 20

If the median voter voted against a project, we can infer that
A)at least half of the voters also voted against it.
B)at most a third of the voters voted against the project.
C)the project was approved.
D)at least half of the voters voted in favor of the project.

Accepted Answer

The median voter is the one who falls in the middle when arranging all voters in order of preference for a project. If the median voter voted against the project, it means that at least half of the voters also voted against it because the median divides the voters into two equal groups. It does not provide information on whether the project was approved or the exact proportion of voters who voted against it.

Quiz 18: Externalities, Open-Access, and Public Goods

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

A commodity or service whose consumption by one person does not preclude others from also consuming it is called a

Over-fishing of common fishing grounds happens because fishing grounds are a common property and social and private incentive are the same.

In the case of a good that has no exclusion and no rivalry, private markets fail because

When majority rule voting is used to determine whether to purchase a public good,

The total demand for a public good is found by

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

A public good in which exclusion is possible is called

The median voter votes yes for a project if

Markets tend to produce too little of an excludable public good because

Which of the following goods has the property of rivalry?

When majority rule voting is used to determine whether to purchase a public good,

Which of the following goods is more likely to be excludable?

Which of the following is NOT a club good?

The efficient quantity of a pure public good occurs when the marginal cost of producing that good equals the

Explain why state governments may charge a fee for beach access to address the commons problem.

Suppose 10 citizens each derive marginal benefit from traffic lights according to the function MB = 10 - Q. If traffic lights cost $10 each to produce, what is the efficient quantity of traffic lights?

The efficient quantity of a public good occurs when the marginal cost of providing that good equals the sum of the marginal benefits to all individuals.

If the median voter voted against a project, we can infer that