Question 1

Provide an intuitive explanation of the free-rider problem.

Accepted Answer

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Question 2

If you can consume a good at the same time that others consume the same good, the good is nonrival in consumption.

Accepted Answer

Nonrivalrous goods can be consumed by multiple individuals at the same time without diminishing the value or quantity available to others consuming the same good. Thus, the statement is correct.

Question 3

The marginal principle ________ to the determination of the optimal level of pollution abatement because ________.

Accepted Answer

The marginal principle applies to the determination of the optimal level of pollution abatement because there are tradeoffs in terms of the costs and benefits of pollution abatement. This principle suggests that the optimal level of pollution abatement is achieved when the marginal cost of abatement equals the marginal benefit of abatement. In other words, we should continue to reduce pollution until the cost of additional abatement measures is equal to the benefits gained from those measures.

Question 4

The reason that air and water pollution impose external costs is that

Accepted Answer

Providers of goods and services often ignore the costs of pollution because they are not directly affected by it and do not have to pay for any damage caused. These costs are therefore external to their business and are imposed on society as a whole, hence the term "external costs".

Question 5

Alissa is studying for her principles of economics exam. She tells her study partner that "Only a very small number of people ever get to become astronauts and go into space. Therefore space exploration is not a public good." Do you agree? Explain.

Accepted Answer

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Question 6

In which of the following situations should a firm reduce its efforts to abate pollution?

Accepted Answer

A firm should reduce its efforts to abate pollution when the marginal benefit of abatement is less than its marginal cost, indicating that the cost of reducing pollution outweigh the benefits. At this point, the firm has reached its optimal level of abatement, and any further effort will result in a net loss.

Question 7

Explain intuitively why the market for a nonexcludable good fails to provide an efficient quantity.

Accepted Answer

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Question 8

Why is it easier to raise $1 million in voluntary contributions for medical research into a deadly disease like cancer than it is to raise the same amount for space exploration?

Accepted Answer

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Question 9

A solution to market failure in the particular application of environmental policy

Accepted Answer

One solution to market failure in environmental policy could be to establish a new market where one had not existed before. For example, the creation of a market for carbon credits provides an economic incentive for firms to reduce their greenhouse gas emissions. This can lead to a reduction in the negative externalities associated with greenhouse gas emissions without government intervention or regulation. It is important to note that this solution does not guarantee success, but can provide an effective way to incentivize environmentally-friendly behavior.

Question 10

Suppose that your local government provides drinking water and charges a 10 cent per gallon fee. Explain whether or not the drinking water is a public good.

Accepted Answer

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Question 11

Public goods are always provided by the government because private markets do not have an incentive to provide them.

Accepted Answer

Private markets may not have a strong incentive to provide public goods, but it is possible for them to do so, such as through the creation of a club good. Additionally, governments may not always provide public goods and may rely on private markets or public-private partnerships to provide them.

Question 12

The optimal level of pollution abatement is where

Accepted Answer

The optimal level of pollution abatement is where the marginal benefit of abatement is equal to its marginal cost. This means that any further abatement would cost more than the benefit derived from it, and any less abatement would result in benefits that outweigh the costs. Therefore, the efficient level is where marginal benefit equals marginal cost.

Question 13

Global warming has become a major international environmental issue. Using the concept of externality, explain why countries around the world seldom reach an agreement to reduce the use of fossil fuels.

Accepted Answer

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Question 14

What are some of the ways a private group can overcome a free rider problem?

Accepted Answer

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Question 15

Protecting endangered species is NOT an example of a public good because there are no external benefits associated with it.

Accepted Answer

Protecting endangered species can have external benefits such as preserving biodiversity, maintaining the ecosystem balance, and benefiting future generations.

Question 16

The free-rider problem is larger for private goods than it is for public goods.

Accepted Answer

The free-rider problem is larger for public goods than for private goods. Private goods are exclusive, meaning that once someone has purchased or consumed the good, others cannot consume it. This means that it is easier to exclude free-riders from benefiting from the good. Public goods, on the other hand, are non-exclusionary, meaning that once the good is produced, anyone can consume it, regardless of whether they are contributing to its production. This makes it more difficult to exclude free-riders and ensure that everyone is contributing their fair share.

Question 17

Fireworks on the night on July 4th are neither rival nor excludable.

Accepted Answer

Fireworks on the night of July 4th are a public good, meaning that they are not rivalrous (one person using or enjoying them does not diminish their availability to others) and not excludable (it is difficult or impossible to prevent others from enjoying them).

Question 18

Market failure is a situation in which

Accepted Answer

Market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss. One common example is when production generates external costs (negative externalities) that are not borne by the producer, such as pollution.

Question 19

An external cost is the cost experienced by people who

Accepted Answer

External costs are costs that are experienced by people who do not decide how much of a good to produce or consume. These costs are imposed on individuals or society as a whole by the actions of others, such as pollution or noise pollution caused by a factory. The decision makers do not take these external costs into account when making their decision, resulting in an inefficient allocation of resources.

Question 20

If you can consume a good without having to pay for it, the good must be nonrival in consumption.

Accepted Answer

Nonrivalry in consumption means that one person's consumption of a good does not reduce the amount available for others to consume, but it does not necessarily mean the good is free or does not require payment.

Quiz 9: Imperfect Information, External Benefits, and External Costs