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Principles of Microeconomics, 1st Canadian Edition

Robert H. Frank, Cornell University
Ben S. Bernanke, Princeton University
Lars Osberg, Dalhousie University
Melvin Cross, Dalhousie University
Brian MacLean, Laurentian University

Public Goods and Taxation

Pre-Test


1	Radio is an example of a good that is
		A)	only nonrival.
		B)	only nonexcludable.
		C)	neither nonrival nor nonexcludable.
		D)	both nonrival and nonexcludable.
		E)	private.


2	A copy of the movie Pulp Fiction at the video store is a __________ good; when it is shown on HBO it is a __________ good; and when it is shown on CBC it is a __________ good.
		A)	private; public; pure public
		B)	collective; private; public
		C)	private; private; collective
		D)	private; collective; public
		E)	private; private; public


3	In general,
		A)	government must always provide pure public goods.
		B)	government is best able to provide all public goods, pure and otherwise.
		C)	government should only provide public goods when private solutions fail and the benefits exceed the costs.
		D)	the benefits of public goods will necessarily be less than the costs so government must be relied upon to provide them.
		E)	the lack of a profit motive means government provided public goods will be wasteful.


4	Which of the following is not a proper justification for charging the government with the responsibility for collecting revenues to finance a public good?
		A)	No single individual may have a reservation price high enough to pay for the public good.
		B)	Negotiation between private citizens about each person's contribution is costly.
		C)	Individuals may attempt to free ride on the contributions of others.
		D)	The costs of the public good exceed the benefits.
		E)	The number of citizens affected may be so large as to render private negotiation impossible.


5	Karl earns $25,000 while Angel earns $40,000. If they are subject to a regressive tax structure,
		A)	Karl and Angel will pay the same amount in taxes.
		B)	Karl will pay a larger amount in taxes.
		C)	Angel will pay a larger amount in taxes.
		D)	Karl will pay a larger percentage of his income in taxes.
		E)	Karl and Angel will pay the same percentage of income in taxes.


6	A tax that is a fixed amount charged to every person is a
		A)	regressive tax.
		B)	proportional tax.
		C)	head tax.
		D)	flat tax.
		E)	Progressive tax.


7	A free rider is someone who
		A)	receives the benefit of a public good without paying for his share of it.
		B)	pays for only that part of a public good that he actually uses.
		C)	boards a transit bus through the back door.
		D)	surfs off the west coast of British Columbia.
		E)	None of the above.


8	The optimal quantity of a public good is produced when
		A)	voters stop complaining that there is not enough of if.
		B)	no one wants to use the public good.
		C)	the demand for the good is less than the marginal cost of its production.
		D)	the demand for the good is equal to the marginal cost of its production.
		E)	the demand for the good is greater than the marginal cost of its production.


9	Under what conditions does the private sector provide public goods?
		A)	When community volunteers offer to provide the good.
		B)	When technology is such that the private sector cannot exclude everyone from consuming the good.
		C)	When groups of private citizens collectively purchase a good which would normally be provide by the government.
		D)	When private sector firms can sell by-products of the public good they are producing.
		E)	All of the above.


10	Rent-seeking behaviour is wasteful because
		A)	the rents do not exist.
		B)	no one will be able to find the existing rents.
		C)	the rents are too low.
		D)	the rents are too high.
		E)	the efforts of the rent-seekers are non-productive.

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