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Chapter 11

Public Goods and Common Resources

Educators

BH

Problem 1

Think about the goods and services provided by your local government.
a. Using the classification in Figure 1, explain which category each of the following goods falls into:
$\bullet$ police protection
$\bullet$ snow plowing
$\bullet$ education
$\bullet$ rural roads
$\bullet$ city streets
b. Why do you think the government provides items that are not public goods?

Kaylee M.
Numerade Educator

Problem 2

Both public goods and common resources involve externalities.
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 externalities 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?

Kaylee M.
Numerade Educator

Problem 3

Fredo loves watching $Downton$ $Abbey$ on his local public TV station, but he never sends any money to support the station during its fund-raising drives.
a. What name do economists have for people like Fredo?
b. How can the government solve the problem caused by people like Fredo?
c. Can you think of ways the private market can solve this problem? How does the existence of
cable TV alter the situation?

Kaylee M.
Numerade Educator

Problem 4

Wireless, high-speed Internet is provided for free in the airport of the city of Communityville.
a. At first, only a few people use the service. What type of a good is this and why?
b. Eventually, as more people find out about the service and start using it, the speed of the connection
begins to fall. Now what type of a good is the wireless Internet service?
c. What problem might result and why? What is one possible way to correct this problem?

Kaylee M.
Numerade Educator

Problem 5

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 movie, how many movies 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 movies equally, how much surplus does each person obtain from watching the movies?
d. Is there any way to split the cost to ensure that everyone benefits? What practical problems does
this solution raise?
e. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally. When Steven is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say?
f. What does this example teach you about the optimal provision of public goods?

BH
Boris H.
Numerade Educator

Problem 6

Some economists argue that private firms 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 of American producers relative to that of foreign firms. Is this argument consistent with your classification of basic research in part (a)? ($Hint$: Can excludability apply to some potential beneficiaries of a public good and not others?)

Yi Chun L.
Washington University in St Louis

Problem 7

Two towns, each with three members, are deciding whether to put on a fireworks display to celebrate the New Year. Fireworks cost \$360. In each town, some people enjoy fireworks more than others.
a. In the town of Bayport, each of the residents values the public good as follows:
$$Frank\ $50$$
$$Joe \space\$100$$
$$Callie \space\$300$$
Would fireworks pass a cost-benefit analysis? Explain.
b. The mayor of Bayport proposes to decide by majority rule and, if the fireworks referendum passes, to split the cost equally among all residents. Who would vote in favor, and who would vote against? Would the vote yield the same answer as the cost-benefit analysis?
c. In the town of River Heights, each of the residents values the public good as follows:$$Nancy \space\$20$$
$$Bess \space\$140$$
$$Ned \space\$160$$
Would fireworks pass a cost-benefit analysis? Explain.
d. The mayor of River Heights also proposes to decide by majority rule and, if the fireworks referendum passes, to split the cost equally among all residents. Who would vote in favor, and who
would vote against? Would the vote yield the same answer as the cost-benefit analysis?
e. What do you think these examples say about the optimal provision of public goods?

Kaylee M.
Numerade Educator

Problem 8

There is often litter along highways but rarely in people's yards. Provide an economic explanation for this fact.

Kaylee M.
Numerade Educator

Problem 9

Many transportation systems, such as the Washington, D.C., Metro (subway), charge higher fares during rush hours than during the rest of the day. Why might they do this?

Kaylee M.
Numerade Educator

Problem 10

High-income people are willing to pay more than lower-income people to avoid the risk of death. For
example, they are 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? Consider, for instance, a rich town and a poor town, both of which are considering the installation of a traffic light. Should the rich town use a higher dollar value for a human life in making this decision? Why or why not?

Kaylee M.
Numerade Educator