PROBLEMS AND APPLICATION

I. Think about the goods and services provided by state and federal  governments.

a. Using the classification in Figure I, explain which category each of the following goods falls into.

• interstate highways
• university education
• national defense
• state parks

2 free vaccinations at public health departments b. Why do you think the government provides  that are not public goods?

2. Both public goods and common resources involve personalities.

a. Are the externalities associated with public goods generally positive or negative? Use examples in.

your answer. Is the free-market quantity of public goods generally greater or less than the efficient quantity?

b. Are the externalizes associated with common resources generally positive or negative? Use examples in your answer. Is the free-market use of common resources generally greater or less than the efficient use.

3. The town council of Bluff Acres has decided to place a fountain in the center of town. To help pay for the fountain, the town council has asked the citizens of Bluff Acres to donate money. Joe Stingy lives across the street from the proposed site and is very pleased that he will get to view the fountain from his home. However, he does not volunteer to send any funds to the council for the proposed fountain.

a. What name do economists have for Joe?

b. Is there anything the town council can do to increase the amount of voluntary donations it receives? Explain.

c. Is there another way for the town council to get the money for the fountain? Explain.

4. Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:

a. Within the dorm room, is the showing of a movie a public good? Why or why not?

b. If it costs $8 to rent a video, how many videos should the roommates rent to maximize total surplus?

c. If they choose the optimal number from part (b). and then split the cost of renting the videos equally, how much surplus does each person obtain from watching the movies

5. So~e economists argue that private will not undertake the efficient amount of basic scientific research.

a. Explain why this might be so. In your answer, classify basic research in one of the categories shown in Figure 1.

b. What sort of policy has the United States adopted in response to this problem?

c. It is often argued that this policy increases the technological capability.

6. Why is there litter along most highways but rarely in people’s yards?

7. The Washington, D.C., metro (subway) system charges higher fares during rush hours than during the rest of the day. Why might it do this?

8. Timber companies in the United States cut down many trees on publicly owned land and many trees on privately owned land.

9. An Economist article (Mar. 19, 1994) states: “In the past decade, most of the rich world’s fisheries have been exploited to the point of near-exhaustion.” Included in the article is the following analysis.

a. “Do not blame fishermen for overfishing. They are behaving rationally, as they have always done. In what sense is over fishing rational for fishermen?

b. A community, held together by ties of obligation and mutual self-interest.

10. The federal government tests the safety of car models and provides the test results free of charge to the public. Do you think this information qualifies as a public good? Why or why not?

11. High-income people are willing to pay more than lower-income people to avoid the risk of death. For example, they an; more likely to pay for safety features on cars. Do you think cost-benefit analysts should take this fact into account when evaluating public projects.

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