Question

The rule of thumb for a government deciding whether to provide a public good is that the:

a. sunk cost of the good should be equal to the marginal benefit.

b. marginal cost of the good should be less than the marginal benefit.

c. opportunity cost of the good should be greater than the marginal benefit.

d.

variable cost of the good should be greater than the sunk cost.

From society’s perspective, the deadweight loss associated with a positive externality occurs because:

a. producers do not bear the true cost of producing the good involved in the transaction.

b. consumers do not internalize the externality.

c. consumers internalize the externality.

d. producers bear the true cost of producing the good involved in the transaction.

If a good is non-rival in consumption, then the marginal cost of adding another user for this particular good is _____.

a. 0

b. 2

c. 1

d. -1

Answer 1

The rule of thumb for a government deciding whether to provide a public good is that the:
Ans.b.marginal cost of the good should be less than the marginal benefit.
For optimum, MC = MB

From society’s perspective, the deadweight loss associated with a positive externality occurs because:
b.consumers do not internalize the externality
When there is positive externality, too little of the good is produced in market equilibriuim.

If a good is non-rival in consumption, then the marginal cost of adding another user for this particular good is
Ans. a. 0