C O N C E P T P R O B L E M S
1. What is achieved by selecting the quantity of an activity at which marginal benefit equals marginal cost?
1. What is achieved by selecting the quantity of an activity at which marginal benefit equals marginal cost?
2. Suppose the marginal benefit of an activity exceeds the marginal cost. What does the marginal decision
rule say a maximizing decision maker will do?
rule say a maximizing decision maker will do?
3. Suppose you are a discus hurler and your goal is to maximize the distance you achieve. You “produce”
discus hurls by practicing. The total benefit of practice is distance achieved, and the input that achieves
this distance is hours of practice. Describe the total benefit curve of practice. What point on the curve
would you select?
discus hurls by practicing. The total benefit of practice is distance achieved, and the input that achieves
this distance is hours of practice. Describe the total benefit curve of practice. What point on the curve
would you select?
4. This chapter argues that consumers maximize utility and firms maximize profits. What do you suppose
each of the following might be presumed to maximize?
a. A minister or rabbi
b. A United States Senator
c. The manager of a major league baseball team
d. The owner of a major league baseball team
e. The director of a charitable organization
each of the following might be presumed to maximize?
a. A minister or rabbi
b. A United States Senator
c. The manager of a major league baseball team
d. The owner of a major league baseball team
e. The director of a charitable organization
5. For each of the following goods, indicate whether exclusive, transferable property rights exist and whether
the good poses a problem for public policy. If it does, does the problem relate to a problem of property
rights?
a. Clean air
b. Tomatoes
c. Housing
d. Blue whales
6. The dry-cleaning industry is a major source of air pollution. What can you conclude about the price and
output of dry-cleaning services?
the good poses a problem for public policy. If it does, does the problem relate to a problem of property
rights?
a. Clean air
b. Tomatoes
c. Housing
d. Blue whales
6. The dry-cleaning industry is a major source of air pollution. What can you conclude about the price and
output of dry-cleaning services?
7. Economists often recommend that polluters such as dry-cleaning establishments be charged fees for the
pollution they emit. Critics of this idea respond that the establishments would simply respond by passing
these charges on to their customers, leaving the level of pollution unchanged. Comment on this
objection.
pollution they emit. Critics of this idea respond that the establishments would simply respond by passing
these charges on to their customers, leaving the level of pollution unchanged. Comment on this
objection.
8. Government agencies often require that children be inoculated against communicable diseases such as
polio and measles. From the standpoint of economic efficiency, is there any justification for such a
requirement?
polio and measles. From the standpoint of economic efficiency, is there any justification for such a
requirement?
9. Which of the following goods or services are public? Why or why not?
a. Libraries
b. Fire protection
c. Television programs
d. Health care
e. Water for household consumption
a. Libraries
b. Fire protection
c. Television programs
d. Health care
e. Water for household consumption
10. If a village in Botswana is granted several licenses to kill elephants, how does this give it an incentive to
preserve elephants and increase the size of the herd? How does the international ban on ivory sales affect
the incentive in Botswana to preserve the elephant?
preserve elephants and increase the size of the herd? How does the international ban on ivory sales affect
the incentive in Botswana to preserve the elephant?
11. The number of fish caught in the ocean has fallen in recent years partly as a result of more intensive
fishing efforts and the use of more sophisticated equipment. Fish in the ocean are a common property
resource. How might this fact be related to declining fish catches? How do you think this drop in the catch
affects the price of seafood?
fishing efforts and the use of more sophisticated equipment. Fish in the ocean are a common property
resource. How might this fact be related to declining fish catches? How do you think this drop in the catch
affects the price of seafood?
