Public and Private Goods

Which of the following is the best example of the free-rider problem?

• A company gives away free samples of a new product.

• A single firm is the sole supplier of corn oil.

• There are economies of scale in the production of passenger elevators.

• It is difficult to exclude those who do not pay for a good from enjoying the benefits of the good.

• There is free entry and exit into production of toothpaste, but products are not homogeneous.

Private supply of public goods is most likely to result in

• less than the efficient level of output, due to the free-rider problem

• less than the efficient level of output, due to the problem of insufficient competition

• more than the efficient level of output, due to lower costs of private firms

• more than the efficient level of output, due to the existence of externalities

• an overuse of these goods

Which of the following is true of the marginal cost of providing a pure public good to one more consumer?

• It is positive.

• It is equal to zero.

• It is equal to the original cost of the good.

• It decreases as the number of consumers increases.

• It increases as the number of consumers increases.

Characteristics of a pure public good include which of the following?

I. Nonpaying consumers cannot be excluded from consuming the good.

II. Consumption by any one person does not reduce the availability of the good to others.

III. The amount consumed depends on the price paid.

• I only

• II only

• III only

• I and II only

• II and III only

Public goods are typically provided by the government, because private markets tend to

• produce them at higher cost

• produce less than the socially optimum quantity

• produce more than the socially optimum quantity

• charge a monopoly price that is greater than the marginal social cost

• charge a monopoly price that is less than the marginal social cost

Which of the following is an example of a pure public good?

• A hamburger sold in a restaurant on a college campus

• Medical education to become a doctor

• A hurricane warning siren

• Paper pulp produced with pollution emissions

• A ticket to the movie theater

Which pair of characteristics is associated with a pure public good?

• Nonrival consumption and ability to exclude nonpayers

• Increasing marginal utility of consumption and a free-rider problem

• Rival consumption and an ability to exclude nonpayers

• Rival consumption and a free-rider problem

• Nonrival consumption and a free-rider problem

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true?

• With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption.

• Over time, fishing operations will voluntarily leave the market as a result of increased competition.

• There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.

• The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply.

• The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.