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If Dave and Jesse are the only two fishermen in town and neither is bothered by the other's fishing, the lake they fish in is not a common resource.

A) True
B) False

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Government intervention cannot improve the allocation of resources for goods that do not have prices attached to them.

A) True
B) False

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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. Then total surplus for the 4 business owners is A) $330 if there is 1 ferry trip. B) $370 if there are 2 ferry trips. C) $150 if there are 3 ferry trips. D) All of the above are correct. -Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750. Then total surplus for the 4 business owners is


A) $330 if there is 1 ferry trip.
B) $370 if there are 2 ferry trips.
C) $150 if there are 3 ferry trips.
D) All of the above are correct.

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

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Private goods are both


A) excludable and nonrival in consumption.
B) nonexcludable and rival in consumption.
C) excludable and rival in consumption.
D) nonexcludable and nonrival consumption.

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

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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.

A) True
B) False

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Table 11-3 This table describes the police protection demands for three equal sized groups of people in Safetyville. The second, third, and fourth columns show the number of person-hours of police protection per day that a group will demand for a given price (the first column) . Table 11-3 This table describes the police protection demands for three equal sized groups of people in Safetyville. The second, third, and fourth columns show the number of person-hours of police protection per day that a group will demand for a given price (the first column) . -Refer to Table 11-3. What is the value of the 39<sup>th</sup> unit of police protection in Safetyville? A) $24 B) $42 C) $54 D) $72 -Refer to Table 11-3. What is the value of the 39th unit of police protection in Safetyville?


A) $24
B) $42
C) $54
D) $72

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

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Table 11-6 Consider the city of Widgetapolis with only four residents, John, James, Mary, and Lydia. The four residents are trying to determine how many hours to spend in cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. Table 11-6 Consider the city of Widgetapolis with only four residents, John, James, Mary, and Lydia. The four residents are trying to determine how many hours to spend in cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. ā€‹ ā€‹ -Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the cost of cleaning the lake equally. To maximize his own surplus, how many hours of cleaning would John like to have completed? A) 2 hours B) 3 hours C) 4 hours D) 5 hours ā€‹ ā€‹ -Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the cost of cleaning the lake equally. To maximize his own surplus, how many hours of cleaning would John like to have completed?


A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours

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

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Goods that are rival in consumption and excludable would be considered


A) club goods.
B) common resources.
C) public goods.
D) private goods.

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

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Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a


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

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

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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 $500. 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 $500. 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) A) and D)
F) All of the above

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Nine friends who love the beach decide to pool their financial resources and equally share the cost of a one-week house rental on Nantucket. Suppose that the beach outside of the house becomes more congested when the nine additional people join the other beachgoers. Which of the following statements is not correct?


A) Use of the beach by the nine new beachgoers will yield a negative externality.
B) The town can reduce the congestion externality by raising the fee to access the beach.
C) An increase in the fee to access the beach could be viewed as a corrective tax on the externality of congestion.
D) Each of the nine friends would have been better off staying at home.

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

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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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Four friends decide to meet at a Chinese restaurant for dinner. They decide that each person will order an item off the menu, and they will share all dishes. They will split the cost of the final bill evenly among each of the people at the table. A Tragedy of the Commons problem is likely for each of the following reasons except


A) each person has an incentive to eat as fast as possible since their individual rate of consumption will not affect their individual cost.
B) there is an externality associated with eating the food on the table.
C) when one person eats, he may not take into account how his choice affects his friends.
D) each dish would be both excludable and rival in consumption.

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

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A toll collected from each car traveling during rush hour on a congested road is an effective correction to the Tragedy of the Commons for all of the following reasons except the toll provides an incentive for commuters to


A) drive at times other than rush hour.
B) use public transit rather than driving.
C) drive more fuel-efficient cars.
D) car-pool.

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

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The national defense of the United States is not rival because


A) my enjoyment of the national defense does not diminish your enjoyment of the national defense of the United States.
B) my enjoyment of the national defense does diminish your enjoyment of the national defense of the United States.
C) once the nation is defended, it is impossible to prevent any single person from enjoying the benefit of this defense.
D) once the nation is defended, it is possible to prevent any single person from enjoying the benefit of this defense.

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

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The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that


A) over time, the aquifer is likely to be overused.
B) each farmer has a sufficient incentive to conserve the water.
C) state governments have an incentive to insure that their farmers do not overuse the water.
D) resources would be used more efficiently if the government paid for the pumps farmers use to get the water.

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

Correct Answer

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Congressman Smith and Congresswoman Johnson both consider themselves advocates for the national parks and are introducing different bills designed to benefit the parks. Congressman Smith's bill calls for an increase in the entrance fees. Congresswoman Johnson's bill calls for a decrease in the entrance fees. Which of the bills would be more effective at ensuring the quality of the national parks?


A) Congressman Smith's bill because it will reduce the overuse of the parks
B) Congresswoman Johnson's bill because more visitors means more citizens will value and care for the parks
C) Both bills would be equally effective.
D) Neither bill would be effective.

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

Correct Answer

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Table 11-1 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. Table 11-1 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. -Refer to Table 11-1. Suppose the cost to build the park is $9 per acre. How large should the park be to maximize total surplus from the park in Springfield? A) 2 acres B) 3 acres C) 4 acres D) 5 acres -Refer to Table 11-1. Suppose the cost to build the park is $9 per acre. How large should the park be to maximize total surplus from the park in Springfield?


A) 2 acres
B) 3 acres
C) 4 acres
D) 5 acres

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

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

A) True
B) False

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Which of the following is correct regarding road tolls as a way to reduce traffic?


A) They can vary based on the amount of traffic that is present.
B) They reduce drivers' explicit cost of driving but increase drivers' implicit cost.
C) Some drivers can be made better off, but some drivers will inevitably made worse off.
D) They are the solution to the free rider problem that occurs on roads.

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

Correct Answer

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