Module M11 Quiz: Public Goods and Common Resources
25 questions · Introductory · Mix of multiple choice, calculation, and short answer
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Attempt each question before clicking Show Answer. For calculation questions, write out your working first.
Question 1
Lesson L01 · Public Goods
A good that is both non-rival and non-excludable is called:
Type: Multiple Choice
- A) A private good
- B) A club good
- C) A public good
- D) A common resource
Show Answer
Answer: C) A public good
Public goods are non-rival (one person's consumption doesn't reduce availability) and non-excludable (cannot prevent non-payers from consuming).
Question 2
Lesson L01 · Public Goods
National defence is a classic example of a public good because:
Type: Multiple Choice
- A) The government provides it
- B) Once provided it protects all citizens simultaneously (non-rival) and no citizen can be excluded from its protection (non-excludable)
- C) It is very expensive
- D) Only taxpayers benefit
Show Answer
Answer: B) Once provided it protects all citizens simultaneously (non-rival) and no citizen can be excluded from its protection (non-excludable)
Defence is non-rival (protecting one citizen doesn't reduce protection for others) and non-excludable (can't protect some citizens while leaving others unprotected).
Question 3
Lesson L01 · Public Goods
Classify each good: (a) a toll road (b) a crowded public beach (c) a private gym (d) ABC Radio.
Type: Calculation
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Answer: (a) Club good (excludable non-rival until congested) (b) Common resource (rival non-excludable) (c) Private good (rival excludable) (d) Public good (non-rival non-excludable)
Classification depends on rivalry and excludability — the 2×2 matrix of good types.
Question 4
Lesson L01 · Public Goods
Explain why a fish in the ocean is a common resource but a fish in an aquaculture farm is a private good.
Type: Short Answer
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Answer: Ocean fish are non-excludable (anyone can fish in open waters) and rival (catching one fish reduces availability to others) — a common resource. Farmed fish are owned by the farm operator (excludable) — a private good with a clear property right.
Property rights transform common resources into private goods.
Question 5
Lesson L01 · Public Goods
Which good is most likely to be under-provided by the private market?
Type: Multiple Choice
- A) A private gym
- B) A toll road
- C) Flood warning systems (non-rival, non-excludable)
- D) A restaurant meal
Show Answer
Answer: C) Flood warning systems (non-rival, non-excludable)
Public goods like flood warnings cannot be profitably provided privately because non-excludability prevents the provider from charging all beneficiaries.
Question 6
Lesson L02 · Public Goods
The free-rider problem means:
Type: Multiple Choice
- A) Some consumers ride public transport for free
- B) People consume a public good without paying because they cannot be excluded — private firms cannot profitably provide the good
- C) Public goods are always free
- D) Government always provides public goods
Show Answer
Answer: B) People consume a public good without paying because they cannot be excluded — private firms cannot profitably provide the good
Non-excludability creates the free-rider problem: rational individuals withhold payment knowing they'll receive the good anyway — so private provision fails.
Question 7
Lesson L02 · Public Goods
The efficient quantity of a public good is where:
Type: Multiple Choice
- A) Supply equals individual demand
- B) The sum of all individuals' marginal willingness to pay equals the marginal cost (vertical summation of demand)
- C) One consumer's WTP equals MC
- D) Government decides how much to provide
Show Answer
Answer: B) The sum of all individuals' marginal willingness to pay equals the marginal cost (vertical summation of demand)
Because public goods are non-rival, all citizens consume the same quantity simultaneously — the social benefit is the SUM of all willingness-to-pay values.
Question 8
Lesson L02 · Public Goods
Three citizens have WTP for fireworks: $30, $50, $20. MC of the fireworks display is $80. Should it be provided?
Type: Calculation
Show Answer
Answer: Yes — total WTP=\(100>MC=\)80
Total social WTP = \(30+\)50+\(20=\)100 > MC=\(80 → net social benefit=\)20 → should be provided. Vertical summation: the display benefits all three simultaneously.
Question 9
Lesson L02 · Public Goods
Why is ABC Radio justified as a public good even though private radio stations exist?
Type: Short Answer
Show Answer
Answer: ABC Radio is non-rival (one listener doesn't reduce availability to others) and non-excludable (anyone with a radio can listen without paying). Private stations survive via advertising but may underprovide non-commercial content with high social value.
Market failure in non-excludable goods justifies government provision even when private alternatives exist.
Question 10
Lesson L02 · Public Goods
Which public good would be hardest to provide privately due to the free-rider problem?
Type: Multiple Choice
- A) A private toll bridge
- B) National flood levee systems protecting entire cities
- C) A cinema screening
- D) A mobile phone network
Show Answer
Answer: B) National flood levee systems protecting entire cities
Flood levees protect all property in an area regardless of contribution — impossible to exclude non-payers, creating severe free-rider problems.
Question 11
Lesson L03 · Public Goods
The tragedy of the commons predicts that common resources will be:
Type: Multiple Choice
- A) Under-used due to high prices
- B) Over-used because each user ignores the cost their consumption imposes on others
- C) Optimally used by community agreement
- D) Protected by government automatically
Show Answer
Answer: B) Over-used because each user ignores the cost their consumption imposes on others
Each user's private incentive is to maximise their own extraction, ignoring the negative externality on other users — leading to overuse and potential depletion.
Question 12
Lesson L03 · Public Goods
Murray-Darling Basin irrigators over-extract water when each farm ignores the external cost on downstream users. If 200 farms each extract 10ML and the socially optimal extraction per farm is 7ML, calculate the total overextraction.
Type: Calculation
Show Answer
Answer: 600 ML
Total actual extraction = 200×10=2,000ML. Socially optimal = 200×7=1,400ML. Overextraction = 600ML.
Question 13
Lesson L03 · Public Goods
Elinor Ostrom won the Nobel Prize for showing that common resources can be managed sustainably through:
Type: Multiple Choice
- A) Government nationalisation only
- B) Privatisation always
- C) Community-based governance with local rules and monitoring — a third way between privatisation and government control
- D) Free markets without rules
Show Answer
Answer: B) Privatisation always
Ostrom documented many cases where communities successfully managed common resources through local institutions — disproving the inevitability of the tragedy.
Question 14
Lesson L03 · Public Goods
Explain three possible solutions to the tragedy of the commons.
Type: Short Answer
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Answer: 1. Privatisation: give individuals property rights in the resource so they internalise the cost of depletion. 2. Government regulation: set quotas, licences, or taxes on extraction. 3. Community management: Ostrom-style collective governance with local rules and enforcement.
Each solution addresses the missing property right or incentive differently.
Question 15
Lesson L03 · Public Goods
Australia's fishing quota system assigns transferable catch rights to fishing operators. This is primarily an example of:
Type: Multiple Choice
- A) Government regulation (command-and-control)
- B) A Pigouvian tax
- C) A market-based solution assigning property rights to internalise the common resource externality
- D) A public good provision
Show Answer
Answer: C) A market-based solution assigning property rights to internalise the common resource externality
Transferable quotas create property rights in fishing — operators bear the cost of depletion and can trade rights to the highest-value users. A market-based Coasian solution.
Question 16
Lesson L04 · Public Goods
Cost-benefit analysis (CBA) for public projects evaluates:
Type: Multiple Choice
- A) Whether the project is profitable for the government
- B) Whether total social benefits exceed total social costs — including non-market values like time savings, environmental impacts, and lives saved
- C) Only financial returns on investment
- D) Whether taxpayers approve of the project
Show Answer
Answer: B) Whether total social benefits exceed total social costs — including non-market values like time savings, environmental impacts, and lives saved
Public sector CBA extends beyond financial returns to include all social costs and benefits, including non-market values difficult to price in markets.
Question 17
Lesson L04 · Public Goods
A road upgrade costs $500m. It saves 10 million travel-hours per year valued at $30/hour, lasts 20 years, discount rate 5%. Calculate the rough NPV.
Type: Calculation
Show Answer
Answer: Positive (~$2.24bn benefit vs $500m cost)
Annual benefit = 10m × $30 = $300m. PV of $300m for 20 years at 5% ≈ $300m × 12.46 = $3.74bn. NPV = $3.74bn - $0.5bn = $3.24bn (positive — proceed).
Question 18
Lesson L04 · Public Goods
Why is choosing the discount rate important in CBA for long-lived public projects?
Type: Short Answer
Show Answer
Answer: A higher discount rate reduces the present value of future benefits — making long-lived projects look less attractive. Infrastructure with benefits 30-50 years out is particularly sensitive: a 5% vs 3% discount rate can reverse a project's net benefit.
The discount rate reflects society's preference for present vs future benefits — a critical and contested choice in public project evaluation.
Question 19
Lesson L04 · Public Goods
Infrastructure Australia evaluates major projects using a benefit-cost ratio (BCR). A BCR of 2.5 means:
Type: Multiple Choice
- A) The project costs $2.50 for every $1 of benefit
- B) For every $1 of cost the project delivers $2.50 of social benefit
- C) The project is 2.5 times over budget
- D) 25% of benefits are social
Show Answer
Answer: B) For every $1 of cost the project delivers $2.50 of social benefit
BCR = PV(benefits)/PV(costs). BCR=2.5 means $2.50 social benefit per $1 cost — a strong positive return.
Question 20
Lesson L04 · Public Goods
Which of the following should be included as a benefit in the CBA of a new metro line?
Type: Multiple Choice
- A) Revenue from ticket sales only
- B) Ticket revenue plus: reduced road congestion for non-users, lower emissions, agglomeration productivity benefits, reduced accidents
- C) Construction employment only
- D) The political benefit to the government
Show Answer
Answer: B) Ticket revenue plus: reduced road congestion for non-users, lower emissions, agglomeration productivity benefits, reduced accidents
CBA must capture all social benefits including externalities and spillovers, not just the operator's financial returns.
Question 21
Lesson L05 · Public Goods
Sydney Harbour Tunnel is a club good because:
Type: Multiple Choice
- A) It is jointly owned by Coles and Woolworths
- B) It is non-rival at low traffic but excludable via toll — a classic club good
- C) It is a pure public good
- D) It is a common resource
Show Answer
Answer: B) It is non-rival at low traffic but excludable via toll — a classic club good
Club goods: excludable (toll) but non-rival up to a congestion threshold. The tunnel becomes rival at peak hour — congestion is the key complication.
Question 22
Lesson L05 · Public Goods
WestConnex tolls average $8 per trip. If daily traffic is 200,000 vehicles, calculate daily toll revenue.
Type: Calculation
Show Answer
Answer: $1.6 million
Revenue = $8 × 200,000 = $1,600,000 per day.
Question 23
Lesson L05 · Public Goods
Australia's NBN was built with a universal service obligation (USO) requiring coverage of remote areas unlikely to be commercially viable. What economic justification supports this?
Type: Short Answer
Show Answer
Answer: Remote broadband access generates positive externalities (enabling remote work, health services, education) and reduces regional inequality. Natural monopoly characteristics mean private provision would cherry-pick profitable urban areas, leaving rural Australians without access.
USO corrects market failure from natural monopoly and positive externalities in underserved regions.
Question 24
Lesson L05 · Public Goods
Congestion pricing on roads (charging more at peak times) is efficient because:
Type: Multiple Choice
- A) It raises maximum government revenue
- B) It prices the negative externality of congestion — drivers at peak times impose costs on other drivers, and the toll forces them to account for this externality
- C) It discourages all driving
- D) It is fairer to charge at peak times
Show Answer
Answer: B) It prices the negative externality of congestion — drivers at peak times impose costs on other drivers, and the toll forces them to account for this externality
Congestion is a negative externality — each additional driver slows all other drivers. A congestion charge internalises this external cost.
Question 25
Lesson L05 · Public Goods
Karijini National Park charges an $18 entry fee. This makes it a:
Type: Multiple Choice
- A) Pure public good
- B) Common resource
- C) Club good — excludable (entry fee) but non-rival (additional visitor doesn't reduce others' enjoyment up to a congestion point)
- D) Private good
Show Answer
Answer: C) Club good — excludable (entry fee) but non-rival (additional visitor doesn't reduce others' enjoyment up to a congestion point)
Entry fees make national parks excludable. Non-rival up to congestion → club good. The user-pays debate: entry fees may reduce access for lower-income Australians.