CHAPTER REVIEW

FACTS AND TOOLS

Question 19.6

1. Take a look at the following list of goods and services:

Apples

Open-heart surgery

Cable television

Farm-raised salmon

Yosemite National Park

Central Park, New York City

The Chinese language

The idea of calculus

  1. Is each item on the list excludable or nonexcludable? Sometimes the border is a little fuzzy, but justify your answer if you think there’s any ambiguity.

  2. Rival or nonrival?

  3. Based on your answers to parts a and b, sort each good or service into one of the four categories from Table 19.1.

  4. How do you exclude people from a park?

Question 19.7

2. Which of the following are free riders, which are forced riders, and which are just people paying for public goods?

  1. In Britain, Alistair pays a tax to support the British Broadcasting Corporation. He doesn’t own a radio or TV.

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  2. Monica pays her local property taxes and state income taxes. Police patrol her neighborhood regularly.

  3. Richard, a young boy in 1940s Los Angeles, jumps on board the streetcar without paying.

  4. In the United States, Sara pays taxes to fund children’s immunizations. She lives out in the forest, has no family, and rarely sees other people.

  5. In Japan, Dave, a tourist from the United States, enjoys the public parks.

Question 19.8

3.

  1. Is education—a college course, for instance—excludable?

  2. Is education a rival good? That is, if your class has more students, do you get a worse education on average? Do students (and parents) typically prefer smaller class sizes? Do professors typically prefer smaller classes? Does it usually cost more for a school to educate more students?

  3. According to the standard economists’ definition of a public good—the definition we use in this chapter—is education a public good?

  4. Into which of the four categories from Table 19.1 does education seem to fit best?

Question 19.9

4. Emeril says, “In my economics class, I learned that the only way to fund public goods was to have the government tax citizens to pay for those goods. Is that what you learned?”

Rachel responds, “Actually, in my class, we used Modern Principles, and we learned that there are other ways to fund public goods, like _________.” Complete Rachel’s statement.

Question 19.10

5. The Patagonian toothfish is a large, ugly fish that can weigh 200 pounds. In the 1990s, it became very popular under its new name, the Chilean sea bass. Soon, it almost became extinct.

  1. Why was the Chilean sea bass almost driven to extinction?

  2. Some top chefs boycotted the Chilean sea bass in the hope of increasing the stock. Why was this unsuccessful?

  3. Australia now enforces limits on the catch. Why would this tend to be more successful than the boycott?

Question 19.11

6.

  1. The nation of Alphaville has been hunting its deer population to extinction. The government decrees strict limits on the number of hunters, and on the number of rounds of ammunition that each hunter can take into the hunt. Hunters, like fishermen, are a creative lot: What will “capital stuffing” look like in this case?

  2. What would an individual transferable quotas (ITQ) system look like in this case?

  3. Do real governments use quotas like this to control deer populations? If you don’t know the answer, just ask your classmates: There’s probably a hunter or two in your course.

Question 19.12

7. This chapter noted that chickens and the “chicken of the sea” (tuna) are fundamentally different in terms of population though they are both food. Indeed, chickens are eaten far more than tuna, and chickens are abundant compared with their ocean-living cousins.

  1. What difference between these two species does this chapter identify as the explanation for this seemingly strange puzzle?

  2. As population and prosperity have increased, the demand for chicken has increased. What happens to the price of chickens as a result? Why?

  3. Because of the rules humans have concerning chickens, what happens to the number of people raising chickens as a result of the price change? Why? What happens to the number of chickens? Why?

  4. What happens to the price of tuna as population and prosperity increase? Why?

  5. Because of the rules humans have concerning tuna, what happens to the number of people harvesting tuna as a result of the price change? Why?

Question 19.13

8.

  1. Why did the fish catch increase in New Zealand after the amount that each fisherman could catch was limited by a quota?

  2. Given your answer to part a, would an individual fisherman in New Zealand want to catch more fish than he’s allowed, if he knew no one would ever catch him?

  3. So given your answer to part b, does the New Zealand system depend on government enforcement to work, or will individual fishermen agree out of self-interest to abide by the ITQ?

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THINKING AND PROBLEM SOLVING

Question 19.14

1. In 2008, Jean Nouvel won the Pritzker Architecture Prize (the highest prize in architecture). One of his most notable works is the Torre Agbar (pictured), a breakthrough skyscraper that lights up each night thanks to more than 4,000 LED devices—a pricey but purely cosmetic feature.

GUIDO COZZI/ATLANTIDE PHOTOTRAVEL/CORBIS
  1. Many people enjoy looking at the Torre Agbar. Just considering that enjoyment, how would you classify the Torre Agbar: rival or nonrival? Why?

  2. The Torre Agbar is the third tallest building in Barcelona. For the purposes of enjoying its illuminated façade, would you classify the building as an excludable or nonexcludable good? Why?

  3. Based on your answers, is the LED façade a public good?

  4. Companies often hire architects like Nouvel to create beautiful buildings that are expensive to design, build, and maintain, yet they cannot charge people to look at them. This chapter offered one possible explanation for this puzzle. What’s the explanation and how does it help justify the construction of a widely enjoyed building? (Hint: The building is the headquarters for Grupo Agbar, a company dedicated to the distribution and treatment of water in countries all over the world. For most of you, this is the first time you’ve heard of this company.)

Question 19.15

2.

  1. “A public good is just a good that provides large external benefits.” Discuss.

  2. “A tragedy of the commons occurs when using a good causes massive external costs.” Discuss. In parts a and b, compare the definitions from Chapter 10 with those from this chapter.

Question 19.16

3.

  1. Has the rise of the Internet and file sharing turned media such as movies and music into public goods? Why?

  2. Taking your answer in part a into account, would government taxation and funding of music improve social welfare? In your answer, at least mention some of the practical difficulties of doing this.

Question 19.17

4. We mentioned that the tragedy of the commons is a form of prisoner’s dilemma, something we saw back in Chapter 15. As is so often the case in economics, the same model can apply to many different settings. Let’s recycle Facts and Tools question 5b from Chapter 16 just to emphasize the point:

  1. We have given you very generic strategies: up, down, left, and right. Relabel the matrix so the game applies to fishermen and the tragedy of the commons.

  2. Which set of strategies would give the fishermen the highest joint payoff?

  3. Which set of actions would be equivalent to the following choice: “One fisherman decided not to conserve and instead to catch more than his fair share.” (There are two correct answers here.)

  4. Which set of actions is the one and only Nash equilibrium? How would you describe it in terms of these two fishermen?

Question 19.18

5. As already mentioned, the line between “public good” and “private good” is genuinely blurry. Electronic tolls on roadways are making excludability a little bit easier every year. In your view, should we continue to think of roads as public goods? (To be more accurate, we really should say, “Should we continue to think of travel on uncongested roads as public goods?”)

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Question 19.19

6. The massive stone faces that pepper Easter Island puzzled people for centuries. What happened to the civilization that erected these faces? A clue is that the island currently has no trees. Trees would have been necessary to roll the stones and to make boats to bring the stones to the island. Archeological digs have discovered the island did have trees very long ago, but it’s believed that the natives used up all the trees until they had no choice but to leave. Can you think of an explanation for why people would behave in this way? The following questions may suggest an answer.

JAMES L. AMOS/CORBIS
  1. Who bore the cost of planting new trees? Who benefited from planting new trees?

  2. As the population of the island grew, what happened to the number of trees? Why?

  3. Biologist Jared Diamond, writing on the subject of trees in Easter Island, asked, “What were they thinking when they cut down the last palm tree?”4 What do you think the person who cut down that last palm tree was thinking, if he acted like a person facing a tragedy of the commons?

Question 19.20

7. Economists typically remind people to weigh the costs of an action against the benefits of that action. Let’s invent some examples where it’s just too expensive or too risky to solve the very real problems discussed in this chapter.

  1. It’s possible that it would just cost too much to defend the earth from asteroids, where the best option, all things considered, is just to hope for the best. Invent an extreme example where this is the case—your example might take place in a world with different technology, different type of government, and so forth.

  2. What about saving the tuna? Invent an example where the best option is to just let the fishermen do what they want, even if tuna go extinct.

CHALLENGES

Question 19.21

1.

  1. Two girls are sharing a cold chocolate milk, as in the picture. How long do you think it will take them to drink all the milk? How long would it take if each girl had her own glass and half the milk? Can you see a problem when the girls drink from a common glass?

    SEAN JUSTIC/CORBIS
  2. What is going on in this picture of the East Texas oil field in 1919? Can you see the problem?

    © BYGONE COLLECTION/ALAMY
  3. Why did we put these two questions together? (Hint: A speech from the movie There Will Be Blood gets at the same question—it’s based on a 1924 speech by U.S. Senator Albert Fall of New Mexico.)

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Question 19.22

2. Some media companies (especially in music and movie industries) run ads claiming that downloading or copying media is the same thing as stealing a DVD from a store. Let’s see if this is the case.

  1. Is a DVD a nonrival good? Why or why not?

  2. Suppose someone stole a DVD from a retail outlet. Regardless of how that person values the DVD, does the movie company lose any revenue as a result of the theft? Why or why not?

  3. Suppose someone illegally downloaded a movie instead of purchasing it. Also suppose that person placed a high value on the movie (he or she valued it more than the price required to purchase it legally). Does the movie company lose any revenue as a result of the theft? Why or why not?

  4. Suppose someone illegally downloaded a movie instead of purchasing it. Also suppose that person placed a low value on the movie (he or she valued it less than the price required to purchase it legally). Does the movie company lose any revenue as a result of the theft? Why or why not?

  5. How is illegally downloading media like retail theft and how is it not?

Question 19.23

3. The economic theory of public goods makes a very clear prediction: If the benefits of some action go to strangers, not to yourself, then you won’t do that action. Economists have run dozens of experiments testing out this prediction. (You can find a readable article by Nobel laureate Elinor Ostrom summarizing the results in the summer 2000 issue of the Journal of Economic Perspectives.)

A typical “public goods game” is quite simple: Everyone in the experiment is given, say, $5 each, theirs to take home if they like. They’re told that if they donate money to the common pool, all the money in the pool will then be doubled. The money in the pool will then be divided equally among all players, whether they contributed to the pool or not. That’s the whole game. Let’s see what a purely self-interested person would do in this setting. (Hint: A public goods game is just like a prisoner’s dilemma, only with more people.)

  1. If 10 people are playing the game, and they all chip in their $5 to the pool, how much will be in the pool after it doubles?

  2. So how much money does each person get to take home if everyone puts the money into the pool?

  3. Now, suppose that you are one of the players, and you’ve seen that all nine other players have put in all their money. If you keep your $5, and the pool money gets divided up equally among all 10 of you, how much will you have in total?

  4. So are you better or worse off if you keep your money?

  5. What if none of the nine had put money into the pot: If you were the only one to put your money in, how much would you have afterward? Is this better or worse than if you’d just kept the money yourself?

  6. So if you were a purely self-interested individual, what’s the best thing to do regardless of what the other players are doing: Put all the money in, put some of it in, or put none of it in? (Answer in percent.) Do the benefits of donating go to you or to other people?

  7. If people just cared about “the group,” they’d surely donate 100%. In part f, you just said what a purely self-interested person would do. In the dozens of studies that Ostrom summarizes, people give an average of 30% to the common pool. So, are the people in these studies closer to the pure self-interest model from part f, or are they closer to the pure altruist model of human behavior?

Question 19.24

4. Canada’s Labrador Peninsula (which includes modern-day Newfoundland and most of modern-day Quebec) was once home to an indigenous group, the Montagnes, who, in contrast to their counterparts in the American Southwest, established property rights over land. This institutional change was a direct result of the increase in the fur trade after European traders arrived.5

  1. Before European traders came, the amount of land in the Labrador Peninsula far exceeded the indigenous people’s needs. Hunting animals specifically for fur was not yet widely practiced. What can you conclude about the relative scarcity of land or animals? Why?

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  2. Before the European arrival, land was commonly held. Given your answer in part a, did the tragedy of the commons play out for the indigenous Montagnes? (Remember, air is also commonly held.)

  3. Once the European traders came, the demand for fur increased. Do you expect the tragedy of the commons to play out under these circumstances? Why or why not?

  4. The Montagnes established property rights over the fur trade, allocating families’ hunting territory. This led to rules ranging from when an animal is accidentally killed in a neighbor’s territory to laws governing inheritance. Why did the Montagnes create property rights only after the European traders came?

Question 19.25

5. It’s one of the ironies of American history that when the pilgrims first arrived at Plymouth Rock, they promptly set about creating a communal society in which all shared equally in the produce of their land. As a result, the pilgrims were soon starving to death.

Fortunately, “after much debate of things,” Governor William Bradford ended the corn commons, decreeing that each family should keep the corn that it produced. In one of the most insightful statements of political economy ever written, Bradford described the results of the new and old systems.

[Ending the corn commons] had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability; whom to have compelled would have been thought great tyranny and oppression.

The experience that was had in this common course and condition, tried sundry years and that amongst godly and sober men, may well evince the vanity of that conceit of Plato’s and other ancients applauded by some of later times; that the taking away of property and bringing in community into a commonwealth would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. For the young men, that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. The strong, or man of parts, had no more in division of victuals and clothes than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labours and victuals, clothes, etc., with the meaner and younger sort, thought it some indignity and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc., they deemed it a kind of slavery, neither could many husbands well brook it. Upon the point all being to have alike, and all to do alike, they thought themselves in the like condition, and one as good as another; and so, if it did not cut off those relations that God hath set amongst men, yet it did at least much diminish and take off the mutual respects that should be preserved amongst them. And would have been worse if they had been men of another condition. Let none object this is men’s corruption, and nothing to the course itself. I answer, seeing all men have this corruption in them, God in His wisdom saw another course fitter for them.

(Source: Bradford, William. Of Plymouth Plantation, 1620–1647. Edited by Samuel Eliot Morison. New York: Modern Library, 1967.)

  1. Imagine yourself a pilgrim under the communal (commons) system. If you worked hard all day in the fields, would that increase your share of the food by a lot or a little? Describe the incentive to work under the communal system.

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  2. Under this system, what type of good was the pilgrim’s harvest?

  3. According to Bradford, the communal system “retard[ed] much employment that would have been to their benefit and comfort.” Why would the communal system reduce something that would have been to the pilgrim’s benefit? How would you describe this using the tools of economics?

  4. According to Bradford, what happened to the amount of food produced and the amount of labor after the communal system was abolished and workers got to keep a larger share of what they produced?

  5. Read Bradford’s statement carefully. What other effects did the communal system create? (Note that economists typically ignore these kinds of effects.)

!launch! WORK IT OUT

  1. American bison onced freely roamed the Great Plains. In the 1820s, there were some 30 million bison in the United States but a survey in 1889 counted just 1,091. Why were the bison driven to near extinction? How were the bison like tuna?

  2. At some restaurants and grocery stores, you can buy bison burgers, made from farm-raised bison. Is this good news or bad news if we want more bison around?

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