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Economics Dr. Sauer

Ch 3: Government I worksheet 1. Consider the market for fire extinguishers. Why might fire extinguishers exhibit positive externalities?

2. An externality exists whenever a. the economy cannot benefit from government intervention. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

3. Since restored historic buildings convey a positive externality, local governments may choose to
a. b. c. d. regulate the demolition of them. provide tax breaks to owners who restore them. increase property taxes in historic areas. Both a and b are correct.

4. For each of the items on the following list, decide whether they are - excludable or non-excludable - rival or non-rival Apples

Cable television

Farm-raised salmon

Rocky Mountain National Park


Who among the following is a free-rider? a. Barry buys candy from the store where he works. b. Betty rides to work with Sally, but she pays Sally for gasoline and other travel-related expenses. c. Joe drives 20,000 miles a year on public streets, but he pays no more in property taxes than Sam, who only drives 1,000 miles. d. Fred watches many public television programs, but he has never sent in a contribution to the station.


Which of the following goods is rival in consumption and excludable? a. a tornado siren b. an uncongested toll road c. a home d. the environment The Whitefish Bay Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case? a. Private goods b. Natural monopoly c. Common resources d. Public goods A cost-benefit analysis of a highway is difficult to conduct because analysts a. cannot estimate the explicit cost of a project that has not been completed. b. are unlikely to have access to costs on similar projects. c. are not able to consider the opportunity cost of resources. d. will have difficulty estimating the value of the highway.