Question 1

Externalities

Accepted Answer

A)  Occur because of government failure.
B)  Are the costs or benefits of market activities that "spill over" onto third parties.
C)  Occur because of selfish consumers.
D)  Occur because demand is hidden.

Question 2

Using Figure 4.2,suppose point C represents the optimal mix of public and private goods for a society.The market mechanism is likely to result in a mix of output represented by point

Accepted Answer

A)  F because the market mechanism is inefficient.
B)  B because the market mechanism tends to overproduce public goods.
C)  C because the market mechanism is efficient.
D)  D because the market mechanism tends to underproduce public goods.

Question 3

A tax is regressive if it takes a

Accepted Answer

A)  Larger number of dollars as income falls.
B)  Smaller fraction of dollars as income falls.
C)  Larger number of dollars as income rises.
D)  Smaller fraction of dollars as income rises.

Question 4

In the United States,direct expenditures for governments between 1933 and 1943

Accepted Answer

A)  Trended up for state and local governments and down for the federal government.
B)  Trended down for state and local governments and up for the federal government.
C)  Trended down for all governments.
D)  Trended up for all governments.

Question 5

Government intervention in the market

Accepted Answer

A)  Always involves an opportunity cost.
B)  Never involves an opportunity cost because only market activities result in other goods and services being given up.
C)  Does not involve an opportunity cost if market outcomes are improved.
D)  Results in the free-rider dilemma.

Question 6

Which of the following explains what would happen if public goods were marketed like private goods?

Accepted Answer

A)  Public goods would be underproduced.
B)  Many consumers would want to buy the goods.
C)  Public goods would be overproduced.
D)  Government failure would result.

Question 7

A "free rider" is an individual who reaps

Accepted Answer

A)  Indirect benefits from someone else's purchase of a public good.
B)  Indirect benefits from someone else's purchase of a private good.
C)  Direct benefits from someone else's purchase of a public good.
D)  Direct benefits from someone else's purchase of a private gooD.A free rider is an individual who reaps direct benefits from someone else's purchase of a public good.

Question 8

Any imperfection in the market mechanism that prevents optimal outcomes is known as

Accepted Answer

A)  Market failure.
B)  Government failure.
C)  External cost.
D)  Public cost.

Question 9

An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people.On the basis of this information,we can conclude that lotteries function as

Accepted Answer

A)  An income tax.
B)  A progressive tax.
C)  A property tax.
D)  A regressive tax.

Question 10

Government waste implies that the public sector is not producing as many services as it could with the resources at its disposal.
Government waste causes an economy to produce less than its potential.

Accepted Answer

A) True 
 B)False

Question 11

Social demand equals market demand plus externalities when there are positive external benefits.
If a product yields external benefits,the social demand is greater than the market demand by the amount of the externality.

Accepted Answer

A) True 
 B)False

Question 12

The term market power refers to

Accepted Answer

A)  A firm's ability to eliminate free riders.
B)  A firm's ability to alter the market price or quantity of a good or service.
C)  The government's ability to change market outcomes.
D)  The government's authority to tax businesses.

Question 13

Which of the following is the government most likely to discourage because of the existence of externalities?

Accepted Answer

A)  All goods and services produced by monopolies.
B)  Cars that create an excessive amount of exhaust fumes.
C)  Thermal pollution from a power plant that improves fishing downstream.
D)  Fatty foods that lead to heart disease.

Question 14

In response to the global recession of 2008 and 2009,governments around the world

Accepted Answer

A)  Reduced public works spending.
B)  Reduced income transfer programs.
C)  Expanded income transfer programs but reduced public spending programs.
D)  Expanded public works spending and income transfer programs.

Question 15

Why is it safe to assume that national defense will always be provided by the government instead of the market?

Accepted Answer

National defense is a public good,which ...

Question 16

Which of the following is an example of a progressive tax?

Accepted Answer

A)  Social Security payroll tax.
B)  A local sales tax.
C)  The federal income tax.
D)  An excise tax.

Question 17

Which of the following is a merit good?

Accepted Answer

A)  Cigarettes.
B)  Food.
C)  Local telephone service.
D)  A computer operating system.

Question 18

When voting mechanisms substitute for the market mechanism in allocating resources,we are relying on

Accepted Answer

A)  Cost-benefit analysis.
B)  Opportunity cost analysis.
C)  Public choice theory.
D)  Ballot box economics.

Question 19

Which of the following produces external benefits?

Accepted Answer

A)  Garbage dumped in the Atlantic Ocean.
B)  The inoculation of college students against the flu.
C)  Passive smoke in a public building.
D)  All of the choices are correct.

Question 20

The optimal mix of output is always the same as the

Accepted Answer

A)  Output that consumers demand.
B)  Most desired combination on a production possibilities curve.
C)  Output that the government provides.
D)  Output that producers produce.

Exam 4: The Role of Government

Government intervention in the market

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The optimal mix of output is always the same as the

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A tax is regressive if it takes a

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Any imperfection in the market mechanism that prevents optimal outcomes is known as

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Externalities

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Using Figure 4.2,suppose point C represents the optimal mix of public and private goods for a society.The market mechanism is likely to result in a mix of output represented by point

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Government waste implies that the public sector is not producing as many services as it could with the resources at its disposal. Government waste causes an economy to produce less than its potential.

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A "free rider" is an individual who reaps

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Which of the following is a merit good?

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An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people.On the basis of this information,we can conclude that lotteries function as

Correct AnswerverifiedShow Answer

Social demand equals market demand plus externalities when there are positive external benefits. If a product yields external benefits,the social demand is greater than the market demand by the amount of the externality.

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In response to the global recession of 2008 and 2009,governments around the world

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Which of the following is an example of a progressive tax?

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Which of the following explains what would happen if public goods were marketed like private goods?

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Why is it safe to assume that national defense will always be provided by the government instead of the market?

Correct AnswerverifiedNational defense is a public good,which ...View AnswerShow Answer

Which of the following is the government most likely to discourage because of the existence of externalities?

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When voting mechanisms substitute for the market mechanism in allocating resources,we are relying on

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In the United States,direct expenditures for governments between 1933 and 1943

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The term market power refers to

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Which of the following produces external benefits?

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National defense is a public good,which ...
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