Exam 4 (Chapters 11-13)

Question 1

Excludability

Answer 1

(close to idea of externality) property of a good where person can be prevented from using it
ex: going to buy ice cream

Question 2

Rivalry in Consumption

Answer 2

property of a good where one person’s use diminishes other people’s use
ex: traffic…others cars consumption of the road
[A good is rival in consumption if one person’s use diminishes other person use]

Question 3

Private Goods

Answer 3

Excludable & Rival in consumption

Question 4

Public Goods

Answer 4

NOT excludable & NOT rival in consumption

Question 5

Common resources

Answer 5

Rival in consumption & not excludable
tend to be used excessively
Gov’t can solve by:
-regulation or taxes to reduce consumption of the common resource
-turn the common resource into a private good

Question 6

Club goods

Answer 6

Excludable & Not rival in consumption

-one type of natural monopoly

Question 7

Free Rider

Answer 7

(effects are short term) person who receives the benefit of a good, but avoids paying it

Question 8

How gov’t can remedy free-rider problem

Answer 8

• if total benefits of a public good exceeds its costs
• provide the public good
• pay for it with tax revenue
• make everyone better off
  ex: parks, highways

Question 9

Some important public goods

Answer 9

• National Defense (very $)
• Basic Research (General Knowledge)
• Antipoverty Programs (food stamps, gov’t housing)

Question 10

Decide whether something is public good

Answer 10

• determine who beneficiaries are

- determine whether beneficiaries can be excluded from using the good

Question 11

Marginal Cost=

Answer 11

△TC / △Q

Question 12

TC=

Answer 12

FC + VC

Question 13

AFC=

Answer 13

FC/Q

Question 14

AVC=

Answer 14

VC/Q

Question 15

ATC

Answer 15

TC/Q