AP MICRO 12/13

An increase in the marginal social benefit of consuming a public good should result in

• a decrease in public production of the good

• an increase in the optimal quantity of the good

• a decrease in the optimal quantity of the good

• a decrease in the social costs associated with producing the good

• a decrease in the social costs associated with consuming the good

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

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

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

3. III. The amount consumed depends on the price paid.

• I only

• II only

• III only

• I and II only

• II and III only

One reason many governments provide free access to mandatory primary education is because primary education

• generates negative externalities

• helps to reduce future income inequality

• is only provided by a natural monopoly

• is nonrival and therefore subject to overcrowding

• is nonexcludable and therefore subject to the free rider problem

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.

National defense is generally provided by the public sector for which of the following reasons?

• The opportunity cost of privately providing national defense is too high.

• The government always provides the socially optimal quantity.

• National defense is a natural monopoly.

• National defense is subject to negative externalities.

• The benefits of national defense are mostly nonrival and nonexcludable.

Which of the following is an example of a good that is nonexcludable and rival in consumption?

• Fish sandwich

• Public highway

• Private dance lesson

• Online music

• National defense

Public goods are under produced in a competitive market because the free-rider problem causes

• supply to be perfectly elastic

• a price ceiling to become binding

• consumers to not reveal their true demand

• positive externalities to increase

• demand to be perfectly inelastic

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