34. Choosing between public or private provision of a good always lead to market efficiencies. A) True.B) False.C) Uncertain.Ans: c Essay
35. You have read that the free rider problem affects equilibrium in a public good context. Explain how this situation can be modeled as a prisoner’s dilemma game.
Ans: Each individual will say before construction that he will tell the truth about his preferences. It would be in each person’s interest to lie about his true preferences, which would allow him to enjoy a higher level of public good without paying for it completely.
36. Discuss and contrast the advantages and disadvantages of public highways versus toll roads. Ans: There would be less uniformity in roads and no assurances about quality. Toll roads might exist in key areas if no one decides to build one or the costs are prohibitive.
37. Some economists believe that public schools would improve if they were subjected to competition. Discuss the pros and cons of this idea.
Ans: Competition would cause weaker schools to try harder to retain the students that they have. Competition could lead to teaching being concentrated at getting students’ test scores to rise without regard to subject matter.
Chapter 5 Externalities
Multiple-Choice
1. Reducing output from the privately optimal level to the socially optimal level will A) cause a loss of consumption to consumers.
B) reduce marginal damages.C) reduce the production costs.D) cause all of the above. Ans: d
2. Marginal damages are hard to measure because
A) they can be generated from multiple sources.B) they are hard to graph.C) they happen over time.
D) no one cares about them. Ans: a
3. In Figure 5.4, if the marginal damages line did not originate at 0,
A) it would mean that marginal damages did not exist.B) there is no way to find MSC. C) MSC would not originate at the same intercept as MPC.D) then all of the above. Ans: c
4. Externalities can be positive because
A) marginal damages do not last over time. B) utility can be impacted positively as well as negatively.
C) there is no concept for marginal benefit. D) positive externalities are subsidies. Ans: b
5. Refer to the graphs below. Which graph(s) represent(s) an externality?