Question 1

When a negative externality exists in the production of a good,

Accepted Answer

A) an appropriate policy would result in an increase in the output of the good. 
B) an appropriate policy would result in a decrease in the price of the good. 
C) a tax on the production of that good could correct for the externality. 
D) government could correct the externality by shifting the good's supply curve to the right. 
E) subsidizing the production of the good could correct for the externality. 
A) an appropriate policy would result in an increase in the output of the good. 
B) an appropriate policy would result in a decrease in the price of the good. 
C) a tax on the production of that good could correct for the externality. 
D) government could correct the externality by shifting the good's supply curve to the right. 
E) subsidizing the production of the good could correct for the externality.

Question 2

Why do people in markets acting in their own self-interest tend to be efficient, whereas people in government acting in their own self-interest are not?

Accepted Answer

People participating in markets have inc

Question 3

Models of government that propose that individuals in government act in their own self-interest are called

Accepted Answer

A) paranoid models. 
B) government choice models. 
C) political science models. 
D) conspiracy models. 
E) public choice models. 
A) paranoid models. 
B) government choice models. 
C) political science models. 
D) conspiracy models. 
E) public choice models.

Question 4

Public choice is the

Accepted Answer

A) study of politics. 
B) use of economic analysis to investigate government behavior. 
C) ability of individuals to choose whether to consume public goods. 
D) use of economic analysis to understand individual choices. 
E) process by which elected leaders are chosen. 
A) study of politics. 
B) use of economic analysis to investigate government behavior. 
C) ability of individuals to choose whether to consume public goods. 
D) use of economic analysis to understand individual choices. 
E) process by which elected leaders are chosen.

Question 5

Explain how people can eliminate externalities through private remedies.

Accepted Answer

People can negotiate with each

Question 6

Because of the free-rider problem associated with postal services, the government provides postal delivery.

Accepted Answer

A) True 
 B)False

Question 7

A negative externality occurs when marginal social costs exceed marginal private costs.

Accepted Answer

A) True 
 B)False

Question 8

The chief source of government failure is

Accepted Answer

A) the impossibility of achieving consensus among voters. 
B) the efforts of those in markets to undermine government. 
C) the ignorance of legislators. 
D) the fallibility of those who run the government. 
E) that government workers are not well paid, so the best and brightest stay in the private sector. 
A) the impossibility of achieving consensus among voters. 
B) the efforts of those in markets to undermine government. 
C) the ignorance of legislators. 
D) the fallibility of those who run the government. 
E) that government workers are not well paid, so the best and brightest stay in the private sector.

Question 9

A negative externality occurs when the purchase of a product

Accepted Answer

A) causes the seller of the product to lose profits. 
B) increases market competition. 
C) causes the government to lose tax revenues. 
D) adversely affects the well-being of an individual outside of the market. 
E) causes a lower market price. 
A) causes the seller of the product to lose profits. 
B) increases market competition. 
C) causes the government to lose tax revenues. 
D) adversely affects the well-being of an individual outside of the market. 
E) causes a lower market price.

Question 10

In a case involving Jack's pollution of Jill's airspace, a private remedy would involve a judge ruling in favor of one of the individuals.

Accepted Answer

A) True 
 B)False

Question 11

As people vote on multiple issues via a single vote, voting patterns do not consistently reflect "citizens" preferences, resulting in a

Accepted Answer

A) need for government. 
B) convergence of positions. 
C) median voter tyranny. 
D) voting paradox. 
E) convergence of opinions. 
A) need for government. 
B) convergence of positions. 
C) median voter tyranny. 
D) voting paradox. 
E) convergence of opinions.

Question 12

A charge made to firms that pollute the environment based on the quantity of pollution they emit is called a(n)

Accepted Answer

A) transactions tax. 
B) command and control remedy. 
C) negative externality tax. 
D) emission tax. 
E) emission tax credit. 
A) transactions tax. 
B) command and control remedy. 
C) negative externality tax. 
D) emission tax. 
E) emission tax credit.

Question 13

Government production of a good makes it a public good.

Accepted Answer

A) True 
 B)False

Question 14

The marginal cost of production as viewed by society as a whole is called the marginal

Accepted Answer

A) social cost. 
B) internal cost. 
C) transactions cost. 
D) private cost. 
E) external cost. 
A) social cost. 
B) internal cost. 
C) transactions cost. 
D) private cost. 
E) external cost.

Question 15

The biggest government-produced item that serves the economy as a whole is

Accepted Answer

A) the postal service. 
B) police protection. 
C) national defense. 
D) education. 
E) highways. 
A) the postal service. 
B) police protection. 
C) national defense. 
D) education. 
E) highways.

Question 16

A new idea in pollution control that has the advantages of command and control and the flexibility of the market is called

Accepted Answer

A) private remedies. 
B) research and experimentation tax credits. 
C) a user fee. 
D) tradable permits. 
E) emission taxes. 
A) private remedies. 
B) research and experimentation tax credits. 
C) a user fee. 
D) tradable permits. 
E) emission taxes.

Question 17

When there is unanimous agreement on an issue,

Accepted Answer

A) there always will be a politician who thinks he or she knows better. 
B) politics will never allow it to be achieved. 
C) the political system will yield the preferred outcome. 
D) no political process will result in a consensus being reached. 
E) voting always leads to an inferior outcome. 
A) there always will be a politician who thinks he or she knows better. 
B) politics will never allow it to be achieved. 
C) the political system will yield the preferred outcome. 
D) no political process will result in a consensus being reached. 
E) voting always leads to an inferior outcome.

Question 18

A situation in which the costs of producing or the benefits of consuming a good spill over onto those who are neither producing nor consuming the good is called a(n)

Accepted Answer

A) transaction cost. 
B) property right. 
C) free rider. 
D) externality. 
E) public good. 
A) transaction cost. 
B) property right. 
C) free rider. 
D) externality. 
E) public good.

Question 19

The government can correct a negative externality problem by taxation.

Accepted Answer

A) True 
 B)False

Question 20

A tradable permit

Accepted Answer

A) is a charge made to firms that pollute the environment based on the pollution quantity they emit. 
B) allows a firm to emit a certain, limited amount of pollutants into the atmosphere. 
C) forces a firm to meet a certain standard. 
D) allows a decrease in tax payments for firms that pollute. 
E) enables firms to reduce pollution at the expense of the government. 
A) is a charge made to firms that pollute the environment based on the pollution quantity they emit. 
B) allows a firm to emit a certain, limited amount of pollutants into the atmosphere. 
C) forces a firm to meet a certain standard. 
D) allows a decrease in tax payments for firms that pollute. 
E) enables firms to reduce pollution at the expense of the government.

Exam 15: Public Goods, Externalities, and Government Behavior

When a negative externality exists in the production of a good,

Why do people in markets acting in their own self-interest tend to be efficient, whereas people in government acting in their own self-interest are not?

Models of government that propose that individuals in government act in their own self-interest are called

Public choice is the

Explain how people can eliminate externalities through private remedies.

Because of the free-rider problem associated with postal services, the government provides postal delivery.

A negative externality occurs when marginal social costs exceed marginal private costs.

The chief source of government failure is

A negative externality occurs when the purchase of a product

In a case involving Jack's pollution of Jill's airspace, a private remedy would involve a judge ruling in favor of one of the individuals.

As people vote on multiple issues via a single vote, voting patterns do not consistently reflect "citizens" preferences, resulting in a

A charge made to firms that pollute the environment based on the quantity of pollution they emit is called a(n)

Government production of a good makes it a public good.

The marginal cost of production as viewed by society as a whole is called the marginal

The biggest government-produced item that serves the economy as a whole is

A new idea in pollution control that has the advantages of command and control and the flexibility of the market is called

When there is unanimous agreement on an issue,

A situation in which the costs of producing or the benefits of consuming a good spill over onto those who are neither producing nor consuming the good is called a(n)

The government can correct a negative externality problem by taxation.

A tradable permit

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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