Practice Worksheet

Explanation National defense is a public good. It's non-excludable — you can't prevent any resident from benefiting from it, even if they didn't pay taxes. It's non-rival — protecting one citizen from foreign attack doesn't reduce the defense available to neighbors. This is the textbook example of a public good, and why governments, not markets, provide it.

Explanation Ocean fish are non-excludable — it's extremely difficult to stop any boat from fishing in open waters. They are also rival — every fish one boat catches is one less fish available to others. That combination (non-excludable + rival) defines a common resource, which is why overfishing is such a persistent problem.

Explanation This is a club good. The toll makes it excludable (non-payers can be blocked). Light traffic means it's non-rival — one driver using the road doesn't reduce its quality for others. Club goods are sometimes called "artificially scarce" goods. Note: if the road became congested, it would shift toward a common resource!

Explanation Basic scientific research is the public good. Once knowledge is created and published, you can't stop others from using it (non-excludable), and one scientist using that knowledge doesn't reduce how much is available to others (non-rival). Pizza and bottled water are private goods (rival and excludable). Netflix is a club good (excludable via subscription, non-rival for streaming content).

Explanation Yes, it is efficient. Total benefit = 500 households × $30 = $15,000. Cost = $10,000. Since total benefit ($15,000) exceeds cost ($10,000), the display creates $5,000 in net social value. Efficiency requires providing it. The problem is that even though it's worth providing, private markets won't, because no one can be excluded from watching — the free-rider problem prevents the market from collecting the $10,000 needed.

Explanation Because fireworks are non-excludable, a private firm cannot prevent households from watching without paying. Rational households will free-ride — they expect others to pay and plan to enjoy the show for free. If everyone thinks this way, no one pays and the firm can't cover the $10,000 cost, even though total willingness to pay is $15,000. This is the essence of the free-rider problem: private incentives prevent provision of a socially valuable good.

Explanation Each farmer uses more than the socially optimal amount. Here's why: when a farmer adds one sheep, they receive 100% of the benefit (wool, milk, meat) but bear only 1/10th of the cost of pasture degradation. The other 9/10ths of the cost is imposed on other farmers — a negative externality. Since the private cost is lower than social cost, each farmer adds too many sheep. When all 10 do this simultaneously, the pasture gets destroyed. That's the tragedy.

Explanation The tragedy arises from negative externalities. When you use a common resource, you impose a cost on every other user (less of the resource for them). Because this cost falls on others and not on you, you don't account for it in your decision — just like a factory that pollutes doesn't pay for the damage it causes downstream. The private cost of using a common resource is lower than the social cost, leading to overuse.

Explanation This is direct regulation — the government sets a hard quantity limit (quota) on how much each boat can catch. It doesn't use price signals or assign property rights; it simply commands a maximum. Fishing quotas are one of the most common tools used to address the tragedy of the commons in fisheries, though enforcing them can be costly.

Explanation A carbon tax is a Pigovian tax. The atmosphere is a common resource — using it to dump CO2 imposes costs on everyone (climate change) that emitters don't pay. By taxing each ton of emissions, the government makes the private cost of polluting equal to the social cost. Emitters reduce pollution to the point where their marginal private cost equals the tax — which ideally equals the marginal social cost. The goal isn't zero emissions, but the efficient level.

Explanation With property rights, the owner internalizes the cost of depletion — overfishing the area today reduces the value of the asset they own. An owner who depletes the fishery destroys their own wealth. This creates a strong incentive for conservation. Contrast this with the commons, where depleting the resource harms others but not just you. This is why Mankiw lists property rights as one of the key solutions to the commons problem.

Explanation True. This is the core reason markets fail to provide public goods. Because no one can be excluded from the benefit, rational individuals prefer to free-ride — letting others pay while they enjoy the good for free. If enough people free-ride, the good isn't provided at all, even when total benefits to society exceed costs. This is a direct market failure requiring government intervention.

Explanation True. The rivalry means that every unit you consume really does reduce availability for others. The non-excludability means there's no price mechanism to make you account for that cost. So your private cost of using the resource is lower than the social cost — a negative externality. This drives overuse. The tragedy of the commons is exactly this: private incentives diverge from social optimum because the cost of depletion is spread across all users, not borne by the individual making the decision.

Explanation False. A lighthouse is a public good, not a common resource. The question correctly identifies it as non-excludable and non-rival. In the 2x2 matrix, non-excludable + non-rival = public good. Common resources are non-excludable + rival. The distinction matters: lighthouses don't get "depleted" by more ships using them, so there's no tragedy-of-the-commons problem. The issue instead is the free-rider problem (ships benefit without paying), which is why historically governments built lighthouses.

Explanation True. When a resource is privately owned, the owner bears all the costs and receives all the benefits of their usage decisions. Depleting the resource today reduces the asset's future value — and that loss falls entirely on the owner. This creates a conservation incentive that the open-access commons lacks. Mankiw notes that this is one reason why privately owned forests are often managed more sustainably than unowned ones. Of course, privatization raises its own questions (who gets the rights? what about equity?), but the incentive effect on conservation is real.