Question : 11.4   Chapter Figures The figure above shows the marginal benefit curve : 1226065

 

11.4   Chapter Figures

 

The figure above shows the marginal benefit curve (MB) and marginal cost curve (MC) of surveillance satellites that provide national defense services.

 

1) In the figure above, the efficient quantity of satellites to produce is

A) 200, because this is where marginal benefit equals marginal cost.

B) 200, because this is where the market is in equilibrium.

C) anywhere below 200, i.e. where marginal benefit exceeds marginal cost.

D) anywhere above 200, i.e. where marginal benefit is below marginal cost.

E) zero, because no one is willing to pay for satellites.

2) In the figure above, a private market will most likely produce

A) no satellites because of the free-rider problem.

B) 200 satellites because at this point marginal benefit equals marginal cost.

C) less than 200 satellites because over this output range marginal benefit exceeds marginal cost.

D) more than 200 satellites because over this output range marginal benefit is below marginal cost.

E) 200 satellites because at this point the market will be in equilibrium.

 

3) Using the figure above, suppose there are two political parties, the Hawks and the Doves, which agree on all issues except for the quantity of defense satellites. The Hawks want 300 satellites and the Doves want 100 satellites. The voters are well informed and know what is best for them. The parties run a voter survey and discover the marginal benefit curve (MB). They also know the marginal cost curve (MC). What quantity of satellites will most likely result from this political process?

A) 200, because unless each party proposes 200 satellites, the other party can beat it in an election

B) 300, because the Hawks are more likely to win

C) 100, because the Doves are more likely to win

D) 200, because the parties will strike a deal: each will agree to give up 100 satellites

E) Zero, because given the marginal benefit and the marginal cost of satellites, none should be provided

 

4) Suppose that satellites are publicly provided. The voters are rationally ignorant, while the Defense Ministry is well informed. Using the figure above, which of the following quantities of satellites is most likely to be provided?

A) 300

B) 200

C) 150

D) 100

E) Zero

11.5   Integrative Questions

 

1) Which of the following can be rival and excludable?

i)a good

ii)a service

iii)a resource

A) i and ii

B) i and iii

C) ii and iii

D) i, ii and iii

E) only i

 

2) National defense is a ________ because ________.

A) public good; it can be an overused resource

B) public good; it is nonrival and nonexcludable

C) common resource; no one has the incentive to pay for his or her share

D) private good; no one has an incentive to conserve the good

E) common resource; it suffers from the tragedy of the commons

 

3) Fish in the ocean are an example of ________ because they are ________.

A) public good; nonexcludable and nonrival

B) public good; rival and excludable

C) common resource; rival and nonexcludable

D) common resource; nonrival and nonexcludable

E) private good; caught by private fishermen

4) A natural monopoly, such as the Internet, is

A) nonrival and excludable.

B) rival and excludable.

C) nonrival and nonexcludable.

D) rival and nonexcludable.

E) None of the above answers are correct.

 

5) The free-rider problem applies

A) to rival and excludable goods.

B) to common resources.

C) to nonrival and nonexcludable goods.

D) when marginal social benefit exceeds marginal private benefit.

E) when marginal social cost equals marginal private cost.

 

6) The marginal benefit curve of a public good is calculated by ________ individual marginal ________ curves.

A) averaging; cost/benefit

B) horizontally summing; cost

C) averaging; benefit

D) vertically summing; benefit

E) horizontally summing; benefit

 

7) The reason that private provision of a public good often leads to inefficiency is because

A) private property rights are too costly to enforce.

B) marginal private benefits are too costly to calculate.

C) no one has the incentive to pay for the good.

D) no one has an incentive to conserve the good.

E) the tragedy of the commons occurs and too many public goods are provided.

8) Which of the following is true?

i.A common resource is a resource that is nonrival and nonexcludable.

ii.Issuing individual transferable quotas (ITQ) means that for users of common resources, the marginal cost plus the price of the ITQ equals the marginal social cost.

iii.In an unregulated market, a common resource is used to the point at which marginal private benefit equals marginal cost.

A) Only i

B) Only ii

C) Only iii

D) i and ii

E) ii and iii