Question

1. To economists, which of the following is true of pollution?

A. It is an externality.

B. It is always produced by third parties.

C. It is never caused by the consumers of the good, only by the producers.

D. It is never caused by the producers of the good, only by the consumers.

2.The free-rider problem is most likely to occur in which of the following cases?

A. A lighthouse

B. Buying apples at a farmers’ market

C. Visits to a local theme park

D. Visits to the emergency room

3. The term exclusion refers to which of the following?

A. The likelihood that the government may exclude the private sector from the production of certain goods

B. The possibility that you may receive benefits without having paid for them

C. The condition where you can’t consume a good if you don’t pay for it

D. The condition where your consumption of a good removes that good from someone else

4. Which of the following is a basic difference between public goods and private goods?

A. A private good is an internal good.

B. A public good must have no cost.

C. Public goods have the property of exclusion.

D. Private goods have the property of exclusion.

Answer 1

1. A. It is an externality.

Explanation: For economists, pollution is an externality because its costs are not accounted for in the production.

2. A. A lighthouse

Explanation: It is non-excludable and therefore people not paying for it cannot be excluded from using it.

3.  C. The condition where you can’t consume a good if you don’t pay for it

Explanation: If a good is excludable, we cannot use it or avail its benefits without paying for it.

4. D. Private goods have the property of exclusion.

Explanation: Private goods are excludable, therefore, we cannot use it or avail its benefits without paying for it.