Question 1

Which of the following justifies the federal government's role in antitrust enforcement?

Accepted Answer

A)  Inequity.
B)  Public goods and externalities.
C)  Market power.
D)  Macro failure.

Question 2

In economics, a public good

Accepted Answer

A)  Is any good produced by the government.
B)  Has social costs of production lower than private costs of production.
C)  Is provided in an optimal amount by the market.
D)  Cannot be denied to consumers who have not paid.

Question 3

Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them.What type of market failure is involved?

Accepted Answer

A)  Inequity.
B)  Public goods.
C)  Externalities.
D)  Market power.

Question 4

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to

Accepted Answer

A)  Overproduce goods that yield external benefits and overproduce those that generate external costs.
B)  Overproduce goods that yield external benefits and underproduce those that generate external costs.
C)  Underproduce goods that yield external benefits and overproduce those that generate external costs.
D)  Underproduce goods that yield external benefits and underproduce those that generate external costs.

Question 5

Sometimes the response to price signals, rather than the signals themselves, may be flawed.

Accepted Answer

A) True 
 B)False

Question 6

The market tends to underproduce public goods.

Accepted Answer

A) True 
 B)False

Question 7

When market failure occurs, the role of government is to

Accepted Answer

A)  Eliminate markets.
B)  Push market outcomes closer to the ideal.
C)  Create an alternative to markets.
D)  Do nothing.

Question 8

The federal personal income tax system is regressive.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the best description of the U.S.tax system?

Accepted Answer

A)  The federal income tax is regressive, but sales, property, and other taxes tend to be progressive.
B)  The U.S.tax system is consistently progressive.
C)  The federal income tax is progressive, but sales, property, and other taxes tend to be regressive.
D)  The U.S.tax system is consistently regressive.

Question 10

Air pollution best illustrates

Accepted Answer

A)  Market power.
B)  An externality.
C)  An inequity.
D)  Government failure.

Question 11

The development of market power by a firm is considered to be a market failure because firms with market power will

Accepted Answer

A)  Produce more and charge a lower price than what would be socially optimal.
B)  Tend to ignore external costs.
C)  Produce less and charge a higher price than what would be socially optimal.
D)  Not respond to consumer demand.

Question 12

Monopolies will tend to overproduce goods and charge a higher price than the competitive price.

Accepted Answer

A) True 
 B)False

Question 13

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 14

The market tends to underproduce public goods because

Accepted Answer

A)  The consumption of a public good by one person prevents the consumption of the same good by another person.
B)  The free-rider dilemma results in exclusive consumption of a good.
C)  It is difficult to measure the benefit of a public good such as national defense.
D)  Joint consumption allows those who do not pay for the good to still benefit from the good.

Question 15

Which of the following is a source of market failure?

Accepted Answer

A)  Private goods.
B)  Market power.
C)  Government intervention.
D)  None of the choices are correct.

Question 16

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 17

The market

Accepted Answer

A)  On its own may not always provide the optimal mix of goods and services.
B)  Always provides the optimal mix of goods and services.
C)  Always provides a better mix of goods and services without government intervention than it does with government intervention.
D)  May not produce the optimal mix of output, which is known as government failure.

Question 18

If the consumption of a good yields external benefits, then

Accepted Answer

A)  The social demand is greater than the market demand.
B)  The social demand is equal to the market demand.
C)  The social demand is less than the market demand.
D)  There is neither social demand nor market demand for the good.

Question 19

A public good is a good or service for which consumption by one person makes consumption by others impossible.

Accepted Answer

A) True 
 B)False

Question 20

If public goods were marketed like private goods, then

Accepted Answer

A)  Public goods would be overproduced.
B)  There would be market failure.
C)  The optimal mix of output would occur at the market equilibrium.
D)  The economy would be outside the production possibilities curve.

Exam 4: The Role of Government

Monopolies will tend to overproduce goods and charge a higher price than the competitive price.

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The market

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Externalities

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A public good is a good or service for which consumption by one person makes consumption by others impossible.

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Air pollution best illustrates

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The federal personal income tax system is regressive.

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Sometimes the response to price signals, rather than the signals themselves, may be flawed.

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Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them.What type of market failure is involved?

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If public goods were marketed like private goods, then

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If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to

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In economics, a public good

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The market tends to underproduce public goods because

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The development of market power by a firm is considered to be a market failure because firms with market power will

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If the consumption of a good yields external benefits, then

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Which of the following is the best description of the U.S.tax system?

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The market tends to underproduce public goods.

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Which of the following is a source of market failure?

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When market failure occurs, the role of government is to

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Government intervention in the market

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Which of the following justifies the federal government's role in antitrust enforcement?

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