Question 1

-In the above figure, market equilibrium at point E yields the quantity X. The quantity  is the socially optimal quantity. Point E indicates that currently there is

Accepted Answer

A)  a negative externality.
B)  a positive externality.
C)  a public good.
D)  a positive externality with subsidy.

Question 2

Receiving a voucher for an apartment in a public housing project would be an example of a good that satisfies

Accepted Answer

A)  the principle of rival consumption.
B)  the definition of a public good.
C)  the definition of a good with a positive externality.
D)  the nonexclusion principle.

Question 3

When misallocation of resources for production of a good results in spillover effects on third parties, there is a

Accepted Answer

A)  market failure.
B)  government failure.
C)  legislative failure.
D)  productive failure.

Question 4

If production of an item results in negative external costs, then

Accepted Answer

A)  the market price is below the socially preferred price that reflects the external costs.
B)  the market price is above the socially preferred price that reflects the external costs.
C)  market forces will always correct the problem.
D)  the market quantity is too low from society's point of view.

Question 5

A difference between the market and the public sector is that

Accepted Answer

A)  competition exists only in the market sector.
B)  resources are only scarce for the market sector.
C)  decision making is by majority rule in the public sector but not in the market sector.
D)  only the public sector produces private goods.

Question 6

Which of the following is a transfer payment? I. Social Security
II. Unemployment benefits

Accepted Answer

A)  I only
B)  II only
C)  Both I and II
D)  Neither I nor II

Question 7

A friend of yours receives a government voucher for an apartment in a public housing project. This apartment represents

Accepted Answer

A)  a government-sponsored good.
B)  the free-rider problem.
C)  a public good.
D)  the drop-in-the-bucket problem.

Question 8

What type of policy does the government adopt in dealing with government-inhibited goods?

Accepted Answer

A)  It subsidizes their consumption.
B)  It subsidizes their production.
C)  It provides them as public goods.
D)  It taxes, regulates, or prohibits their use.

Question 9

In graphical form,the effect of imposing a tax on a good is shown as

Accepted Answer

A)  a leftward shift of the market supply curve.
B)  a rightward shift of the market supply curve.
C)  a downward movement along the market supply curve.
D)  no change to the market supply curve.

Question 10

Public goods are desired because

Accepted Answer

A)  people want and value them but the private sector will not make them available.
B)  we want the government to spend our tax dollars.
C)  they came in small units.
D)  they make supply equal to demand for private goods.

Question 11

A possible solution to the problems of external benefits is

Accepted Answer

A)  to tax those receiving the extra benefits.
B)  production of the good by government.
C)  effluent fees.
D)  to restrict the amount of the good through direct government regulation.

Question 12

A negative externality such as pollution can be corrected by

Accepted Answer

A)  a subsidy to producers.
B)  a tax on producers.
C)  a subsidy to consumers.
D)  a stimulus to production.

Question 13

Over the past 40 years, there has been an increase in spending on public education without a significant increase in student performance. One explanation given by economists on why student performance has not improved is that

Accepted Answer

A)  not enough funds have been spent on public education.
B)  schools are providing high-priced services that are not valued by parents.
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium.
D)  too much competition for educational services.

Question 14

One of the most important characteristics of the price system is that

Accepted Answer

A)  consumers are the ones who ultimately decide what is produced.
B)  politicians are the ones who ultimately decide what is produced.
C)  competition among sellers is reduced.
D)  all exchanges are regulated by the government.

Question 15

A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

Accepted Answer

A)  The quantity of chemical solvents produced now will be the efficient amount.
B)  Demand for the chemical solvents will increase.
C)  Demand for the chemical solvents will decrease.
D)  Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected.

Question 16

Which of the following is an example of a public good?

Accepted Answer

A)  Flood control
B)  Post Office
C)  Health care
D)  Welfare

Question 17

In which of the following ways is the private market sector similar to the public sector in terms of decision making?

Accepted Answer

A)  Prices determine the demand for goods and services in each sector.
B)  There is competition for scarce resource in both sectors.
C)  Both sectors may use a type of "force" if necessary.
D)  Votes by individual voters are basically equal in importance with dollars spent by individuals on goods.

Question 18

-According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be

Accepted Answer

A)  Q1.
B)  Q2.
C)  Q2 - Q1.
D)  none of the above.

Question 19

-Refer to the above figure. Medicare subsidies have increased the price of medical services to  . The quantity demanded of medical services is

Accepted Answer

A)    .
B)    .
C)    .
D)  undetermined without more information.

Question 20

All of the following are economic functions of the government EXCEPT

Accepted Answer

A)  providing a legal system.
B)  determining the wage rate for most jobs.
C)  promoting competition in the market.
D)  providing public goods.

Exam 5: Public Spending and Public Choice

All of the following are economic functions of the government EXCEPT

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Which of the following is an example of a public good?

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A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

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Public goods are desired because

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Over the past 40 years, there has been an increase in spending on public education without a significant increase in student performance. One explanation given by economists on why student performance has not improved is that

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When misallocation of resources for production of a good results in spillover effects on third parties, there is a

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A difference between the market and the public sector is that

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In graphical form,the effect of imposing a tax on a good is shown as

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What type of policy does the government adopt in dealing with government-inhibited goods?

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Which of the following is a transfer payment? I. Social Security II. Unemployment benefits

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-According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be

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A possible solution to the problems of external benefits is

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If production of an item results in negative external costs, then

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-Refer to the above figure. Medicare subsidies have increased the price of medical services to . The quantity demanded of medical services is

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In which of the following ways is the private market sector similar to the public sector in terms of decision making?

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Receiving a voucher for an apartment in a public housing project would be an example of a good that satisfies

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-In the above figure, market equilibrium at point E yields the quantity X. The quantity is the socially optimal quantity. Point E indicates that currently there is

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A friend of yours receives a government voucher for an apartment in a public housing project. This apartment represents

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A negative externality such as pollution can be corrected by

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One of the most important characteristics of the price system is that

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