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Exam 11: Public Goods and Common Resources

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Question 221

Multiple Choice

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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 arises because the free-rider problem does not apply to goods such as fireworks displays.
C) In deciding not to produce a fireworks display in Yankeeville, private individuals and private firms made decisions that were privately irrational.
D) All of the above are correct.

E) A) and B)
F) A) and C)

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Question 222

True/False

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When free riders are present in a market, the market generally fails to provide the efficient outcome.

A) True
B) False

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Question 223

Multiple Choice

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The government provides public goods because

When property rights are not well established,

Figure 11-1 -Refer to Figure 11-1. The box labeled B represents what type of good?

Common resources and public goods have in common that they are not excludable and they are not rival in consumption.

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. 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?

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.

When a good does not have a _______ attached to it, private markets fail to ensure that the good is produced and consumed in the proper amounts.

The free-rider problem exists with

Table 11-5 A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island - Restaurants 1 and 2, and Stores A and B - think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip. -Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. How many ferry trips would the owner of Restaurant 1 prefer to have?

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

Figure 11-1 -Refer to Figure 11-1. A tornado siren in a small town is an example of the type of good represented by Box

One solution to the "Tragedy of the Commons" is to turn the common resource into a private good.