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The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct?


A) The free-rider problem causes the private market to undersupply education to the community.
B) The government can potentially help the market reach a socially optimal level of education.
C) A tax increase to pay for education could potentially make the community better off.
D) The private market is the best way to supply education.

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

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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. 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 $1,000. How many ferry trips should there be to maximize the total surplus of the four business owners? A) 1 B) 2 C) 3 D) 4 -Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000. How many ferry trips should there be to maximize the total surplus of the four business owners?


A) 1
B) 2
C) 3
D) 4

E) B) and C)
F) C) and D)

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People cannot be prevented from using a good if the good is


A) a private good or a public good.
B) a private good or a common resource.
C) a public good or a common resource.
D) a public good or a club good.

E) C) and D)
F) A) and D)

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Tolls are not effective in altering people's incentives to drive during rush hour.

A) True
B) False

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The U.S. patent system


A) makes general knowledge excludable.
B) makes specific, technical knowledge excludable.
C) creates a disincentive to invent.
D) Both a and b are correct.

E) A) and D)
F) None of the above

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A rather large city has only one fire station, two fire trucks, and four firefighters. Is fire protection in this city characterized by rivalry in consumption?

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Fire protection in this city is somewher...

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In which of the following examples are property rights not well established?


A) Carmen smokes a cigarette outside the door to her office building.
B) Carlita stocks shelves in a grocery store.
C) Cameron watches a movie in his home theater room.
D) Cathy docks her boat at her lake house.

E) None of the above
F) All of the above

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What do clean air in New York City and elephants in Africa have in common?


A) They are both common resources.
B) They are both public goods.
C) They are both club goods.
D) Both are excludable.

E) None of the above
F) B) and C)

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Pollution is a


A) problem that is entirely unrelated to the parable called the Tragedy of the Commons.
B) problem that cannot be remedied with regulations or corrective taxes.
C) negative externality that can be viewed as a public-goods problem.
D) negative externality that can be viewed as a common-resource problem.

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

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Markets may fail to allocate resources efficiently when property rights are not well established.

A) True
B) False

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The ocean remains one of the largest unregulated resources for each of the following reasons except


A) many countries have access to the ocean.
B) it is difficult to get international cooperation among countries that hold different values.
C) the oceans are so vast that enforcing any agreements would be difficult.
D) All of the above are reasons the ocean remains one of the largest unregulated resources.

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

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After a recent spike in violent crime, the local police department wants to spend $550,000 on a new crime fighting initiative. If a human life is worth $9 million, the crime fighting initiative is worth the cost if it reduces the risk of someone dying from crime by at least


A) 3.5 percentage points.
B) 5.5 percentage points.
C) 6.1 percentage points.
D) 9.0 percentage points.

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

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Figure 11-1 -Refer to Figure 11-1. In which box - A, B, C, or D - does clean air belong? Figure 11-1 -Refer to Figure 11-1. In which box - A, B, C, or D - does clean air belong?

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Clean air is a commo...

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Concerts in arenas are not excludable because it is virtually impossible to prevent someone from seeing the show.

A) True
B) False

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Which of the following is not a common resource?


A) elephants in the wild
B) a narrow trail in a park
C) a neighborhood garden
D) Neither a nor b is a common resource.

E) B) and C)
F) C) and D)

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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. 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. Which business owners) would be opposed to having any ferry trips? A) only the owner of Store B B) only the owners of Stores A and B C) only the owners of Stores A and B and Restaurant 2 D) All 4 business owners would be opposed to paying for any ferry trips. -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. Which business owners) would be opposed to having any ferry trips?


A) only the owner of Store B
B) only the owners of Stores A and B
C) only the owners of Stores A and B and Restaurant 2
D) All 4 business owners would be opposed to paying for any ferry trips.

E) All of the above
F) A) and D)

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Which of the following statements is correct?


A) Environmental degradation is an example of a free rider problem..
B) The division between public goods and common resources is clear-cut.
C) Some goods, such as lighthouses, may be either private or public goods.
D) The free-rider problem prevents governments from supplying public goods.

E) A) and B)
F) All of the above

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Which of the following goods is rival in consumption and excludable?


A) a DVD
B) a movie in an empty theater
C) an outdoor movie shown at a public park
D) a movie shown on cable television.

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

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To achieve the optimal provision of public goods, the


A) market should be allowed to arrive at an equilibrium without government intervention.
B) government must limit the provision of the goods.
C) government must tax producers of the goods.
D) government must either provide the goods or subsidize their production.

E) A) and C)
F) C) and D)

Correct Answer

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An economics professor, upset about the rising cost of textbooks, proposed that his department purchase 50 copies of a statistics book so the students in the statistics class would not have to purchase their own books but rather could borrow a book for the semester and then return it for the next class to use. Which of the following strategies would not prevent a common resource problem with the textbooks?


A) Students will be required to pay a deposit for the textbook, which is refundable at the end of the semester when the book is returned in good condition.
B) The textbooks are placed in a common area of the department so students can borrow and return them as needed.
C) Students must sign a form agreeing to return the book or pay a fine equal to the replacement cost of the book.
D) The textbooks are placed in the professor's office and will only be given to students who are registered members of the class. These students will not receive their final course grades until the books are returned.

E) B) and D)
F) B) and C)

Correct Answer

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