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Public Goods and Common Resources 11 CHECKPOINTS

Click on the button to go to the problem © 2013 Pearson Problem 1 Problem 2 Problem 4 In the news Problem 3 Problem 1 Problem 2 Problem 3 Checkpoint 11.1 Checkpoint 11.2 Checkpoint 11.3 Clicker version Clicker version Problem 2 In the news

© 2013 Pearson 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 CHECKPOINT 11.1

© 2013 Pearson 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. CHECKPOINT 11.1

© 2013 Pearson 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 CHECKPOINT 11.1

© 2013 Pearson 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. CHECKPOINT 11.1

© 2013 Pearson 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 CHECKPOINT 11.2

© 2013 Pearson 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.. CHECKPOINT 11.2

© 2013 Pearson 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? CHECKPOINT 11.2

© 2013 Pearson 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. CHECKPOINT 11.2

The winner will provide the efficient quantity: 3 square miles sprayed a day. CHECKPOINT 11.2

© 2013 Pearson 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? 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

© 2013 Pearson 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 ______. CHECKPOINT 11.2 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 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.” CHECKPOINT 11.2

© 2013 Pearson 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. CHECKPOINT 11.2

© 2013 Pearson 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? CHECKPOINT 11.3

© 2013 Pearson Solution The quantity of milk produced is 100 gallons a day—the quantity at which the marginal private cost equals the marginal social benefit. CHECKPOINT 11.3

© 2013 Pearson 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. CHECKPOINT 11.3

© 2013 Pearson 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. CHECKPOINT 11.3

© 2013 Pearson 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? CHECKPOINT 11.3

© 2013 Pearson 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. CHECKPOINT 11.2

© 2013 Pearson 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? CHECKPOINT 11.3

© 2013 Pearson 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. CHECKPOINT 11.3

© 2013 Pearson 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? CHECKPOINT 11.3

© 2013 Pearson 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. CHECKPOINT 11.3