Practice Questions

Chapter 10-Public Goods

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

1) The tragedy of the commons refers to the: 1)

A) overuse of resources that have no price.
B) overuse of resources that have no cost.
C) failure of the Coase theorem when negotiation is costly.
D) under production of goods that have external benefits.

2) Which of the following would be most vulnerable to the tragedy of the commons? 2)
A) Apples in Phoebe's apple orchard B) Timber on public land
C) Cattle on a ranch D) Restrooms in a restaurant

3) Since the cost of using more of any resource is ________, viewing any resource's 3)
price as zero leads to ________.
A) positive; a surplus B) negative; overutilization
C) positive; underutilization D) positive; overutilization

4) The essential cause of the tragedy of the commons is the fact that: 4)
A) governments may choose not to tax activities that generate negative externalities.
B) people do not always specialize according to their comparative advantage.
C) marginal costs are increasing.
D) one person's use of a commonly held resource imposes an external cost on others.

5) Early settlers in the town of Dry Gulch drilled wells to pump as much water as they 5)
wanted from the single aquifer beneath the town. (An aquifer is an underground body
of water.) As more people settled in Dry Gulch, the aquifer level fell and new wells
had to be drilled deeper at higher cost. The residents of Dry Gulch will overuse water
relative to the social optimum because ________.
A) each resident will fail to adequately consider the external benefit of his or her own
water use
B) each resident will fail to adequately consider the external cost of his or her own
water use
C) the marginal cost of water is increasing
D) water is a scarce resource

6) Total economic surplus will be ________ in nations with well-defined property 6)

rights than in nations with poorly-defined property rights.
A) no different B) higher
C) less predictable D) lower

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7) Which of the following is most likely to be used efficiently? 7)
A) A privately-owned natural resource
B) A private good that entails an external benefit
C) A publicly-owned natural resource
D) A private good that entails an external cost

8) The following data show the relationship between the number of drivers who leave for 8)
work at 8:00 a.m., their average commute time, and their marginal benefit of
commuting.

If commuters view highway use as having a price of zero, then one can predict that
________ drivers will leave for downtown at 8:00 am.
A) 500 B) 200 C) 300 D) 400

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9) The following data show the relationship between the number of drivers who leave for 9)
work at 8:00 a.m., their average commute time, and their marginal benefit of
commuting.

If there is no charge to use the highway, then one would expect that ________ than
socially optimal number of drivers will leave at 8:00 a.m. because ________.
A) more; the social marginal benefit of using the highway is greater than the private
marginal benefit
B) less; the private marginal benefit of using the highway is greater than the social
marginal benefit
C) more; each driver's use of the highway imposes an external cost on other drivers by
increasing the commute time
D) less; each driver's use of the highway imposes an external cost on other drivers by
increasing the commute time

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10) Thefollowing data show the relationship between the number of drivers who leave for 10)
work at 8:00 a.m., their average commute time, and their marginal benefit of
commuting.

One way for the government to increase economic efficiency would be for it to:
A) require employers to allow workers to arrive late for work
B) subsidize gasoline consumption
C) charge a toll to use the highway during rush hour
D) require all 500 drivers to collectively decide when each should leave for work