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Exam 11: Public Goods and Common Resources

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Question 1

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Roads can be considered either public goods or common resources, depending on how congested they are.

A) True
B) False

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Question 2

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If a highway is congested, then use of that highway by an additional person would lead to a

A) negative externality.
B) positive externality.
C) Pigovian externality.
D) free-rider problem with rush-hour drivers stuck in traffic.

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

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Question 3

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Economists argue that we can calculate the value of a human life by observing voluntary risks that people take every day.

The government often intervenes when private markets fail to provide an optimal level of certain goods and services. For example, the government imposes an excise tax on gasoline to account for the negative externality that drivers impose on one another. Why might the private market not reach the socially optimal level of traffic without the help of government?

Because of the free-rider problem,

A state-owned bridge is

What can the government do to solve the problem of excessive use of common resources?

A good that is excludable but not rival is known as a club good.

What particular characteristic do public goods and common resources have in common?

Scenario 11-1 ​ Becca is a single mother of two young children who spend their days at a daycare center while Becca goes to work. The daycare center closes at 5:30. If parents do not pick up their children at or before 5:30, the daycare center charges a late fee of $5 per child for every 10 minutes the parent is late. -Refer to Scenario 11-1. Due to traffic, Anh expects to be 40 minutes late to pick up his children. Which of the following most accurately describes the set of prices that he would be willing to pay for a variable toll road that would get him to the daycare center on time?

Table 11-3 -An absence of property rights often leads to market failure. When this is the case, how does society usually solve the problem?

Most goods in our economy are allocated in markets, where buyers pay for what they receive and sellers are paid for what they provide.

Aristotle writes, "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." In this statement, Aristotle is referring to the free-rider problem that occurs when a person receives the benefit of a good without paying for it.

Table 11-3 -The creation of knowledge is a public good. Because knowledge is a public good, profit-seeking firms tend to free-ride on the knowledge created by others and, as a result, devote too few resources to the creation of knowledge. How does the U.S. government correct for this apparent market failure?

Common resources and public goods have in common that they are not excludable and they are not rival in consumption.

Is a tornado siren excludable? Is it rival in consumption? How do we classify a tornado siren in terms of the four types of goods?

What do we mean when we say that a good is excludable?

Scenario 11-3 Consider the following goods: • a fish fillet served at a restaurant • fish in the ocean • exotic fish in a huge aquarium in a privately-owned building -Refer to Scenario 11-3. Which of these goods is the best example of a common resource? Briefly explain.

For private goods allocated in markets,

Private goods are both