Econ 101 Section 3 – Principles of Microeconomics
Instructor: C. Burkart
Questions 1 to 12 are worth 2 points each. Clearly circle the one best answer to each question. You will not receive credit if your answer choice is unclear or ambiguous.
1. Which of the following is true of public goods?
a. All of the above are true.
b. They are nonexcludable and nonrival in consumption.
c. A free market will produce more than the efficient amount.
d. They must be provided by the government.
2. Traffic congestion is an example of
a. a good for which the marginal social cost is zero.
b. an artificially scarce good.
c. a good that is nonrival in consumption.
d. overuse of a common resource.
3. Which of the following is the best example of an artificially scarce good?
a. Gasoline
c. College classes
d. Lobster
4. Suppose your state government could undertake some measures that would improve the safety of highways within the state. If the goal is to use resources efficiently, how many of the measures should be undertaken?
a. All of them
b. All measures up to the point at which the marginal social benefit from safety improvements equals the marginal social cost
c. All measures for which the marginal social benefits from safety improvements are greater than zero
d. All measures for which the marginal social benefit from safety improvements is at least as great as what motorists have reported they would be willing to pay
5. Which of the following characteristics is essential if a good is to be efficiently provided by a market economy?
a. Be a common resource
b. Be subject to overuse
c. Be subject to the free rider problem
6. Why is it that the free market fails to provide the efficient quantity of a public good?
a. Because it is impossible to force those who benefit from the good to pay for it.
b. Because there are external costs associated with the provision of a public good.
c. Because there are uninsurable risks associated with a public good.
d. Because public goods are always large scale projects that require government financing.
7. A good is rival in consumption if:
a. the same unit of the good cannot be consumed by more than one person at the same time.
b. there is no free-rider problem.
c. the supplier of that good can prevent people who do not pay from consuming it.
d. the supplier of that good cannot prevent people who do not pay from consuming it.
8. The free-rider problem arises when
a. goods are nonrival in consumption.
b. the marginal social cost of producing a good exceeds the private marginal cost.
c. a good is nonexcludable.
d. there is overuse of a common resource.
9. Artificially scarce goods are both
a. excludable and nonrival in consumption.
b. excludable and rival in consumption.
c. nonexcludable and rival in consumption.
d. nonexcludable and nonrival in consumption.
10. A good is excludable if
a. the supplier of that good can prevent people who do not pay from consuming it.
b. it is a common resource and nonrival in consumption.
c. there is no free-rider problem and the good is nonrival in consumption.
d. the same unit of the good cannot be consumed by more than one person at the same time.
11. When the supplier of an artificially scarce good charges a price greater than zero,
a. then the good becomes nonexcludable.
b. then he gives rise to the free-rider problem.
c. then he reduces producer surplus from what it would be if the price were zero.
d. then he reduces consumer surplus from what it would be if the price were zero.
12. A common resource is both
a. excludable and nonrival in consumption
b. nonexcludable and nonrival in consumption.
c. nonexcludable and rival in consumption.
d. excludable and rival in consumption.
Questions 13-16 are worth 4 points each. The table below shows the total cost of hiring a 24-hour security service and each individual resident’s total benefit from the service in a residential community of 1000 residents.
|
Quantity |
|
Total individual benefit |
|
of guards |
Total cost |
to each resident |
|
0 |
$0 |
$0 |
|
1 |
20,000 |
40 |
|
2 |
40,000 |
71 70 |
|
3 |
60,000 |
90 |
|
4 |
80,000 |
100 |
|
5 |
100,000 |
105 |
13. If there are 1,000 residents in the community, what is the total social benefit of 3 guards?
a. $10
b. $9,000
c. $10,000
d. $90,000
14. If there are 1,000 residents in the community, what is the marginal social benefit of the fourth guard?
a. $10
b. $9,000
c. $10,000
d. $90,000
15. If an individual resident were to decide about hiring and paying for security guards on his or her own, how many guards would that resident hire?
a. 0
b. 1
c. 3
d. 5
I made a couple of mistakes in the explanation and table above, so I'm giving everyone full credit for the following question:
16. If the residents act together, how many guards will they hire?
a. 0
b. 1
c. 3
d. 5