Chapter 16: Public Choices and Public Goods

Question 1

Private choice

Answer 1

A decision that only has consequences for the person making it.

Question 2

Public choice

Answer 2

A decision that has consequences for many people and perhaps for an entire society.

Question 3

Three reasons while governments exist

Answer 3

• They establish and maintain property rights
• They provide nonmarket mechanisms for allocating scarce resources
• They implement arrangements that redistribute income and wealth.

Question 4

Government failure

Answer 4

A situation in which government actions lead to inefficiency - to either underprovision or overprovision.

Question 5

Political equilibrium

Answer 5

The choices of voters, firms, politicians and bureaucrats are all compatible and no group can see a way of improving its position by making a different choice.

Question 6

Excludable goods

Answer 6

A good where it is possible to prevent someone from enjoying its benefits.

Question 7

Nonexcludable goods

Answer 7

A good where it is impossible to prevent anyone from benefiting from it.

Question 8

Rival

Answer 8

A good where one person’s use of it decreases the quantity available for someone else.

Question 9

Nonrival

Answer 9

A good where one person’s use does not decrease the quantity available for someone else.

Question 10

Private good

Answer 10

Both rival and excludable.

Question 11

Public good

Answer 11

Both nonrival and nonexcludable.

Question 12

Common resource

Answer 12

Rival and nonexcludable good.

Question 13

Natural monopoly good

Answer 13

Nonrival and excludable good.

Question 14

Mixed good

Answer 14

A private good, the production or consumption of which creates and externality.

Question 15

Externality

Answer 15

A cost (external cost) or a benefit (external benefit) that arises from the production or consumption of a private good and that falls on someone other than its producer or consumer.

Question 16

Negative externality

Answer 16

An externality that imposes a cost.

Question 17

Positive externality

Answer 17

An externality that provides a benefit.

Question 18

3 things public choices must be made to do

Answer 18

• Provide public goods and mixed goods
• Conserve common resources
• Regulate natural monopoly

Question 19

Tragedy of the commons

Answer 19

When the market economy would overproduce while stocks last and underproduce as stocks run out.

Question 20

Free rider

Answer 20

Someone who enjoys the benefits of a good or service without paying for it.

Question 21

Free-rider problem

Answer 21

That the economy would provide an inefficiently small quantity of a public good.
Marginal social benefit from the public good would exceed its marginal social cost and a deadweight loss would arise.

Question 22

Principle of minimum differentiation

Answer 22

The tendency for competitors to make themselves similar to appeal to the maximum number of clients or voters.

Question 23

Private benefit

Answer 23

A benefit that the consumer of a good or service receives.

Question 24

Marginal benefit

Answer 24

The benefit from an additional unit of a good or service.

Question 25

Marginal private benefit

Answer 25

The benefit that the consumer of a good or service receives from an additional unit of it.

Question 26

External benefit

Answer 26

The benefit that someone other than the consumer of the good or service receives.

Question 27

Marginal external benefit

Answer 27

The benefit from an additional unit of a good or service that people other than its consumer enjoy.

Question 28

Marginal social benefit

Answer 28

The marginal benefit enjoyed by society - by the consumer of a good or service (marginal private benefit) and by others (The marginal external benefit)

Question 29

Marginal Social Benefit (MSB) =

Answer 29

Marginal (private) benefit + Marginal external benefit

Question 30

Three devices governments can use to achieve a more efficient allocation of resources in the presence of external benefits

Answer 30

• Public production
• Private subsidies
• Vouchers

Question 31

Public production

Answer 31

A service or good is produced by a public authority that receives its revenue from the government.

Question 32

Subsidy

Answer 32

A payment that the government makes to private producers.

Question 33

Voucher

Answer 33

A voucher is a token that the government provides to households, which they can use to buy specified goods or services.