Transcript Chapter 10 Checkpoint - Georgia Regents University

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© 2013 Pearson
Public Goods and
Common Resources
11
CHECKPOINTS
© 2013 Pearson
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Checkpoint 11.1
Checkpoint 11.2
Problem 1
Problem 1
Problem 1
Problem 2
Problem 2
Problem 2
Problem 3
In the news
Clicker
version
Checkpoint 11.3
Problem 3
Problem 4
In the news
© 2013 Pearson
CHECKPOINT 11.1
Practice Problem 1
Classify the following services in 2009 for computer owners
with an Internet connection as rival, nonrival, excludable, or
nonexcludable:
• eBay
• A mouse
• A Twitter page
• MyEconLab Web site
© 2013 Pearson
CHECKPOINT 11.1
Solution
eBay is nonrival and nonexcludable.
A mouse is rival and excludable.
Twitter is nonrival and you can choose to make
your page excludable or nonexcludable.
MyEconLab is nonrival and excludable.
© 2013 Pearson
CHECKPOINT 11.1
Practice Problem 2
Classify each of the following items as a public good, a
private good, or a common resource:
• Fire protection
• A seat at the final match of the U.S. Open (tennis)
• A pay-per-view movie on television
• The Mississippi River
© 2013 Pearson
CHECKPOINT 11.1
Solution
Fire protection is nonrival and nonexcludable, so it
is a public good.
A seat at the final match of the U.S. Open is rival
and excludable (a private good) with an external
benefit, so it is a mixed good.
A pay-per-view movie on television is rival and
excludable, so it is a private good.
The Mississippi River is rival and nonexcludable, so
it is a common resource.
© 2013 Pearson
CHECKPOINT 11.2
Practice Problem 1
For each of the following goods, explain whether there is
a free-rider problem. If there is no such problem, how is it
avoided?
• Fire protection
• A July 4th fireworks display
• Interstate 80 in rural Wyoming
© 2013 Pearson
CHECKPOINT 11.2
Solution
Fire protection is a public good; a July 4th fireworks display
is a public good.
In both cases, the free-rider problem is avoided by public
provision and financing through taxes.
Interstate 80 in rural Wyoming is a public good.
The public good creates a free-rider problem that is avoided
because governments collect various taxes via the tax on
gas and the vehicle registration fee..
© 2013 Pearson
CHECKPOINT 11.2
Practice Problem 2
The table provides information
about a mosquito control
program.
What quantity of spraying would
a private mosquito control
program provide? What is the
efficient quantity of spraying?
In a single-issue election on the
quantity of spraying, what quantity
would the winner of the election
provide?
© 2013 Pearson
CHECKPOINT 11.2
Solution
A private mosquito control
program would provide zero
spraying because the free-rider
problem would prevail.
The efficient quantity is 3 square
miles a day—the quantity at
which the marginal benefit
equals the marginal cost.
© 2013 Pearson
CHECKPOINT 11.2
The winner will provide the
efficient quantity: 3 square
miles sprayed a day.
CHECKPOINT 11.2
Practice Problem 3
In the situation described in the
table, the government sets up a
Department of Mosquito Control
and appoints a bureaucrat to run
the department.
Would the mosquito spraying
most likely to be underprovided,
overprovided, or provided at the
efficient quantity?
© 2013 Pearson
CHECKPOINT 11.2
Solution
The mosquito spraying would
most likely to be overprovided
by the Department of
Mosquito Control because
the bureau would try to
maximize its budget.
CHECKPOINT 11.2
Study Plan Problem
The government sets up a
Department of Mosquito Control and
appoints a bureaucrat to run the
department. The mosquito spraying
would most likely be ______.
A. overprovided because the bureau would
try to maximize its budget
B. over- or under-provided depending on the
bureau chief’s work ethic
C. underprovided because the workers in the
bureau will want to do the minimum
amount of work
D. efficient because public accountability
makes a government bureau produce the
quantity at which marginal benefit equals
marginal cost
© 2013 Pearson
CHECKPOINT 11.2
In the news
Vaccination dodgers
Doctors struggle to eradicate polio worldwide, but one of
their biggest problems is persuading parents to vaccinate
their children. The discovery of the vaccine has eliminated
polio from Europe and the law requires everyone to be
vaccinated. People who refuse to be vaccinated are “free
riders.”
Source: USA Today, March 12, 2008
Explain why someone who has not opted out on medical or
religious grounds and refuses to be vaccinated is a “free
rider.”
© 2013 Pearson
CHECKPOINT 11.2
Solution
Polio is a serious disease that causes much suffering.
If everyone in a neighborhood except one person gets
vaccinated, then the unvaccinated person benefits from
all the neighbors’ vaccinations.
The unvaccinated person is a free rider.
© 2013 Pearson
CHECKPOINT 11.3
Practice Problem 1
Cows graze on common pasture
and can produce milk . The table
shows the marginal external cost
and marginal social benefit from
the amounts produced.
The marginal private cost of a
cow is zero.
What quantity of milk is produced
if use of the common pasture is
not regulated?
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CHECKPOINT 11.3
Solution
The quantity of milk produced is 100 gallons a day—the
quantity at which the marginal private cost equals the
marginal social benefit.
© 2013 Pearson
CHECKPOINT 11.3
Practice Problem 2
Cows graze on common pasture
and can produce milk.
The marginal private cost of a cow is
zero. The table shows the marginal
external cost and marginal social
benefit from the amounts produced.
What is the efficient quantity of milk
to produce? Show the deadweight
loss from overproduction on the
graph.
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CHECKPOINT 11.3
Solution
The efficient quantity of milk is 60
gallons a day—the quantity at
which the marginal social cost
equals the marginal social
benefit.
Marginal social cost equals
marginal private cost plus
marginal external cost.
The deadweight loss equals the
area of the gray triangle.
© 2013 Pearson
CHECKPOINT 11.3
Practice Problem 3
Cows graze on common pasture
and can produce milk.
The marginal private cost of a cow is
zero. The table shows the marginal
external cost and marginal social
benefit from the amounts produced.
If the common pasture was
converted to private land, what
quantity of milk would be produced?
© 2013 Pearson
CHECKPOINT 11.2
Solution
If the common pasture were
converted to private land and
fenced off, the quantity of milk
would be produced would be
the efficient quantity 60 gallons
a day.
The quantity of milk at which
which the marginal social
benefit equals the marginal
social cost.
© 2013 Pearson
CHECKPOINT 11.3
Practice Problem 4
Cows graze on common pasture
and can produce milk.
The marginal private cost of a cow
is zero. The table shows the
marginal external cost and marginal
social benefit from the amounts
produced.
If ITQs were issued for the efficient
quantity produced, what would be
the market price of an ITQ?
© 2013 Pearson
CHECKPOINT 11.3
Solution
The market price of an ITQ would
equal the marginal external cost
at the efficient quantity.
The efficient quantity is 60
gallons a day.
The market price of an ITQ would
be $6 a gallon.
© 2013 Pearson
CHECKPOINT 11.3
In the news
Whaling hurts tourist industry
Leah Garces, the director of programs at the World Society
for the Protection of Animals, reported that whale
watching is more economically significant and
sustainable to people and communities than whaling.
The global whale-watching industry is estimated to be a
$1.25 billion business enjoyed by over 10 million people
in more than 90 countries each year.
Source: BBC, June 2, 2009
Describe the tradeoff facing communities that live near
whaling areas. How might a thriving whale-watching
industry avoid the tragedy of the commons?
© 2013 Pearson
CHECKPOINT 11.3
Solution
Communities in a whaling area face the tradeoff between
whale hunting and developing a whale-watching business.
With a thriving whale-watching industry, these
communities will have an incentive to protect the whales
and not overuse the natural resource.
© 2013 Pearson