Marginal Social Benefit

Section A: Multiple Choice (2 points each; 26 points total)

1. When social welfare is maximized, which of the following must be true?

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a. Marginal social benefit equals marginal social cost.
b. Marginal private benefit equals marginal social cost.
c. Marginal social benefit equals marginal private cost.
d. Marginal private benefit equals marginal private cost.
e. Both a and d

2. A commercial-free music streaming service (e.g. Spotify Premium) is which of the following?

a. Non-rival
b. Non-excludable
c. Non-rival and non-excludable
d. Neither non-rival nor non-excludable

3. Which type of giving is crowded out by contributions of government or others?

a. Self-interested
b. Altruistic
c. Warm glow
d. Price-sensitive

4. The U.S. has a progressive income tax with a deduction for charitable contributions if the taxpayer has itemized deductions worth more than the standard deduction. Which U.S. taxpayer has the lowest tax price of charitable giving?

a. Low-income taxpayer with low value of itemized deductions
b. Low-income taxpayer with high value of itemized deductions
c. High-income taxpayer with low value of itemized deductions
d. High-income taxpayer with high value of itemized deductions

5. Consumption of alcohol has negative externalities (e.g. more car accidents). Which would provide an argument for a smaller tax on alcohol purchases?

a. A large externality
b. A high percentage of alcohol being purchased by high-income people
c. High-income taxpayer with low value of itemized deductions
d. High-income taxpayer with high value of itemized deductions

6. In the basement of David Kinley Hall, there is a messy microwave shared by faculty and grad students. Which of the following would NOT reduce under-provision of microwave cleaning?

a. A public record of who has cleaned the microwave
b. Equal valuation of the benefits of a clean microwave
c. Altruism
d. Warm glow

7. Building a public bridge would cost the government $100 million in materials and labor. It would provide benefits worth $110 million compared to leaving things to the private market. Should the government build the bridge?

a. Yes
b. No
c. It depends on the cost of public funds
d. It depends on the amount of crowd-out

8. A college town has no city bus system. Every student would be willing to pay $10 per week to use a bus system. The college requires every student to pay a fee equal to $10 per week. It provides as much busing as it can with the sum of these fees, and it gives free access to the bus system to anyone with a student ID. This approach:

a. solves the free-rider problem
b. equates MRT with the sum of each student’s MRS
c. corrects an externality
d. Answers a and b are correct.
e. Answers a, b, and c are correct.

9. Suppose that a market is in equilibrium and there is no government intervention in the market. If the social marginal cost of producing an item is $6, the private marginal cost of production is $4, and the social marginal benefit is $12, what is the private marginal benefit of the item?

a. $2
b. $4
c. $6
d. $8
e. $10
f. $12

10. Which is a benefit of a within-subject experimental design compared with a between-subject experimental design? Select all that apply.

a. Randomization
b. Cost per decision observed
c. Order effects
d. Statistical power
e. Heterogeneity analysis

11. Which provides an argument for government intervention in a market? Select all that apply.

a. Public good
b. Externality
c. Crowd out
d. First Fundamental Theorem of Welfare Economics

12. Professor Perry runs a multi-round public goods experiment and finds that 50% of subjects contribute in the first round and only 10% of subjects contribute in the last round. This is consistent with which of the following? Select all that apply.

a. Findings in the literature
b. Nash equilibrium
c. Free-riding
d. Pareto optimality
e. Conditional cooperation

13. Class lectures have shown empirical evidence for which of the following claims? Select all that apply.

a. Greater generosity of unemployment insurance reduces consumption smoothing
b. Introducing reporting requirements reduces charitable donations
c. Broadening eligibility for Medicaid reduces the number of individuals with private insurance
d. More generous subsidies for saving in a retirement account reduce total savings. For more information on Marginal Social Benefit visit this:

Marginal Social Benefit

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