Question

1. The "free-rider" problem refers to a situation in which:

some people receive welfare benefits to which they are not entitled.

the benefits associated with public goods cannot be denied to users, whether or not they are willing to pay for them.

government must subsidize public transportation.

the benefits associated with private goods cannot be denied to those who are unwilling to pay for them.

2. According to the Coase Theorem, an efficient outcome can be achieved without any need     for active government involvement as long as:

property rights are clearly defined and transaction costs are sufficiently high.

property rights are clearly defined and transaction costs are sufficiently low.

there are no ownership rights which might be affected by a spillover (external) cost.

the parties causing the spillover (external) costs cannot be identified.

3.The Tragedy of the Commons refers to:

the tendency for the quality of output to decline as it becomes more readily available, or common.

the inability of the “common man” to successfully negotiate with large corporations when negative externalities arise.

the tendency to use common resources more than is desirable from society’s point of view.

the fact that common areas are often little-used and ignored on college campuses.

4.Which of the following is not an example of government response to a market failure?

A county collecting property taxes to fund public schools

A privately-owned business that does not allow smoking

The Environmental Protection Agency setting auto emissions standards

Laws requiring that children attend school

Answer 1

1) Free rider refers to the situation in which the people benefit out of a public good without even paying for them

the benefits associated with public goods cannot be denied to users, whether or not they are willing to pay for them (b)

2) Coase Theorem states that efficiency and outcome can be achieved without the government intervention as long as: property rights are clearly defined and transaction costs are low.

property rights are clearly defined and transaction costs are sufficiently low.(b)

3) The tragedy of common refers to the problem of overconsumption and exploitation of a common resource which is unregulated which results in a deficiency of the resource from the society's point of view (c)

4) The government usually sets rules and regulations and place taxes on a market failure outcome so correct option is a privately owned business that does not allow smoking (b)