Ch.

11
1. a. Private good. The good is rival in consumption (only one can eat the elk) and excludable (the hunter
must pay to have the right to hunt on the preserve).
b. Common resource. The good is rival in consumption (only one can eat the elk) but it is not
excludable (nonpayers cannot be excluded from hunting).
c. Public good. The good is nonrival in consumption (when another radio is turned on, it does not
reduce the quality of the signal to others), and it is nonexcludable (the radio station cannot exclude
nonpayers).
d. Club good. The good is nonrival in consumption (when another radio is turned on, it does not
reduce the quality of the signal to others), and it is excludable (nonpayers can be excluded from accessing
the signal).
e. Private good. The good is rival in consumption (only one can use the auto at at time) and excludable
(nonpayers can be excluded).
f. Club good. The good is nonrival in consumption (another rider doesnt reduce the benefits of
existing riders), and it is excludable (nonpayers can be excluded from riding the bus).
3.

a. Charlie is a free rider.

b. The government could solve the problem by sponsoring the show and paying for it with tax revenue
collected from everyone.
c. The private market could also solve the problem by making people watch commercials that are
incorporated into the program. The existence of cable TV makes the good excludable, so it would no longer
be a public good.
4. a. If only a few people use the free wireless internet, it would not be excludable and not rival in
consumption. Thus, it would be a public good.
b. Once a large number of people begin using the free internet service, it is a common resource. It is
still not excludable, but it is now rival in consumption.
c. Overuse is likely to occur. One possible way to correct for this would be to make the good excludable
by charging a fee for its use.
5. a. Movies in a dorm room are a public good because no roommate can be excluded from watching the
movies even if he doesnt pay and one more roommate watching does not reduce the benefits of the
movie to the other viewers.
b. They should rent two movies because the group values the first movies at $17 (which exceeds the
price of $10), values the second movie at $13 (which exceeds the price of $10), but values the third movie
at $9 (which is less than the price of $10).
c. Two movies at $10 each equals $20. $20/4=$5. If each pays $5, Judd values two movies at $13 for a
surplus of $8. Joel values two movies at $9 for a surplus of $4. Gus values two movies at $5 for a surplus of
$0, and Tim values two movies at $3 for a surplus of -$2. Total surplus is $10.
d. Costs could be split based on how much each values the movies. The problem is that each has
incentive to understate their benefits if they know that they will be charged based on their stated benefits.

e. No. Since Judd values movies more than average, he has an incentive to overstate his benefits, get
more movies, and spread the cost among the other roommates.
7. When a person litters along a highway, others bear the negative externality, so the private costs are
low. Littering in your own yard (or perhaps your neighbors yards) imposes costs on you, so it has a higher
private cost and is thus rare.
9. When the system is congested, each additional rider imposes costs on other riders. For example, when
all seats are taken, some people must stand. Or if there isn't any room to stand, some people must wait for
a train that isn't as crowded. Increasing the fare during rush hour internalizes this externality.