Topic 2.7 Public Goods and Externalities

What is one reason that local law enforcement is considered a public good?

• Everyone in the community benefits from it.

• Nobody in the community has to pay for it.

• Private firms make a profit from producing it.

• Individual citizens pay directly for it.

Public goods are examples of market failure, because producing these goods in the free market

• encourages private businesses to distribute resources efficiently.

• does not allow for the efficient distribution of resources.

• shows that the free enterprise system cannot distribute resources.

• helps entrepreneurs learn how to distribute public resources.

Which of the following is an example of a positive externality resulting from an outdoor band concert?

• An elderly woman in her apartment hears a song that she liked as a child.

• A pair of endangered birds leave their nest in a nearby tree when the concert starts.

• A pizza parlor closes early, because all of its customers are at the concert.

• A traffic jam occurs as drivers hunt for parking spots near the concert.

The goal of government welfare programs is to

• maintain a poverty threshold that matches the median income.

• eliminate the dependence of people on the welfare system.

• eliminate the income gap between the richest Americans and the poorest.

• raise the standard of living of certain less-fortunate members of society.

Which of the following explains why a city fireworks display on the Fourth of July is provided as a public good?

• Fireworks displays usually take place in a public area.

• Fireworks are a scarce resource.

• Nonpayers cannot be prevented from seeing the fireworks.

• Each consumer pays a fee to see the fireworks.

What might be the economic benefit of the government providing a public good rather than the private sector?

• decreased prices for the good

• decreased cost for the good

• increased taxes needed to provide the good

• greater efficiency in providing the good

What is critical in determining whether something is produced as a public good?

• whether the market has the resources to provide it

• whether the benefits to society are greater than the total cost

• whether the government needs to use tax money to provide it

• whether the benefits are limited to the poor

Market failure occurs whenever

• free markets fail to distribute resources efficiently.

• goods fail to arrive at a market in a timely fashion.

• government builds infrastructure.

• voluntary exchange in a market fails to result in a sale.

If a student volunteers at a food pantry on Fridays after school, which of the following might be a negative externality?

• The student might learn a new skill.

• The student might make some new friends.

• The student's parents have to drive him or her to the food pantry.

• The student might decide to volunteer two days a week.

"Whether we're talking about roads or bridges or mass transit, whether we're talking about canals and waterways, sewage and water facilities, whether we're talking about broadband, or we're talking about the grid to transmit electricity, whether we're talking about schools, an investment in infrastructure that serves the needs of our children and their education, . . . these infrastructure investments offer our nation job-creating opportunities to reinvigorate the American economy."—Nancy Pelosi, Speaker of the House, Press Release, March 11, 2008

Government-built infrastructure is a public good. Which of the following BEST paraphrases the intent of this press release by a government official?

• to inform people about the various types of infrastructure

• to warn people that the nation's infrastructure needs to be repaired

• to alert people to the large investment needed to repair infrastructure

• to persuade people that the benefits of repairing infrastructure outweigh the costs