Question 1

The majority of federal expenditures is spent on

Accepted Answer

A) Private sector purchases of goods and services. 
B) National Defense. 
C) Income transfers. 
D) Public sector purchases of goods and services. 
A) Private sector purchases of goods and services. 
B) National Defense. 
C) Income transfers. 
D) Public sector purchases of goods and services.

Question 2

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

Question 3

Which of the following is a sound economic reason why the government should subsidize your college education?

Accepted Answer

A) To help the school's monopoly power over private schools. 
B) It is too expensive. 
C) Third parties,other than yourself,benefit from you being educated. 
D) The profit motive would cause the private sector to overproduce education. 
A) To help the school's monopoly power over private schools. 
B) It is too expensive. 
C) Third parties,other than yourself,benefit from you being educated. 
D) The profit motive would cause the private sector to overproduce education.

Question 4

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. 
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 5

Local property taxes are a

Accepted Answer

A) Regressive tax because poorer people spend a larger portion of their income on property taxes. 
B) Progressive tax because as income increases people tend to buy more expensive houses. 
C) Progressive tax because the total tax on housing increases as the price of the house increases. 
D) Proportional tax because properties are taxed at the same rate regardless of the value of the home. 
A) Regressive tax because poorer people spend a larger portion of their income on property taxes. 
B) Progressive tax because as income increases people tend to buy more expensive houses. 
C) Progressive tax because the total tax on housing increases as the price of the house increases. 
D) Proportional tax because properties are taxed at the same rate regardless of the value of the home.

Question 6

From 2000 to 2010,the public sector share of total output

Accepted Answer

A) Trended up for state and local governments and down for the federal government. 
B) Trended up for state and local governments and up for the federal government. 
C) Remained stable for state and local governments but trended up for the federal government. 
D) Remained stable for the federal government but trended up for state and local governments. 
A) Trended up for state and local governments and down for the federal government. 
B) Trended up for state and local governments and up for the federal government. 
C) Remained stable for state and local governments but trended up for the federal government. 
D) Remained stable for the federal government but trended up for state and local governments.

Question 7

A tax that is placed on the quantity of the item being purchased,such as gallons of it,is called a(n)

Accepted Answer

A) Income tax. 
B) Property tax. 
C) Excise tax. 
D) None of the choices are correct. 
A) Income tax. 
B) Property tax. 
C) Excise tax. 
D) None of the choices are correct.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Suppose that if your income is $20,000,your tax is $4,000,but if your income is $40,000,your tax is $8,000.Such a tax is

Accepted Answer

A) Regressive. 
B) Progressive. 
C) Proportional. 
D) A merit tax. 
A) Regressive. 
B) Progressive. 
C) Proportional. 
D) A merit tax.

Question 10

The free-rider dilemma occurs in the provision of public goods because an individual can realize the benefits of someone else's purchase (consumption)of a public good.

Accepted Answer

A) True 
 B)False

Question 11

The primary function of taxes is to

Accepted Answer

A) Transfer the command of resources from the private sector to the public sector. 
B) Increase the purchasing power of the private sector. 
C) Increase private saving. 
D) Correct inequities in the distribution of goods and services. 
A) Transfer the command of resources from the private sector to the public sector. 
B) Increase the purchasing power of the private sector. 
C) Increase private saving. 
D) Correct inequities in the distribution of goods and services.

Question 12

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. 
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 13

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. 
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.

Question 14

When there is a decrease in the unemployment rate,

Accepted Answer

A) The economy moves closer to the production possibilities curve. 
B) The production possibilities curve shifts outward. 
C) The production possibilities curve shifts inward. 
D) There is a movement along the production possibilities curve. 
A) The economy moves closer to the production possibilities curve. 
B) The production possibilities curve shifts outward. 
C) The production possibilities curve shifts inward. 
D) There is a movement along the production possibilities curve.

Question 15

The optimal mix of output is the most desirable combination of output attainable with existing

Accepted Answer

A) Resources and products. 
B) Resources,technology,and social values. 
C) Resources,government regulations,and technology. 
D) Technology and business decisions. 
A) Resources and products. 
B) Resources,technology,and social values. 
C) Resources,government regulations,and technology. 
D) Technology and business decisions.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Market power creates a flawed response to an accurate price signal.

Accepted Answer

A) True 
 B)False

Question 18

Social demand is equal to

Accepted Answer

A) Market demand plus or minus externalities. 
B) Public demand plus or minus externalities. 
C) Tax revenue plus or minus externalities. 
D) Private goods plus or minus externalities. 
A) Market demand plus or minus externalities. 
B) Public demand plus or minus externalities. 
C) Tax revenue plus or minus externalities. 
D) Private goods plus or minus externalities.

Question 19

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) Foods that taste good. 
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) Foods that taste good.

Question 20

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. 
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.

Exam 4: The Role of Government

The majority of federal expenditures is spent on

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

Which of the following is a sound economic reason why the government should subsidize your college education?

The market tends to underproduce public goods because

Local property taxes are a

From 2000 to 2010,the public sector share of total output

A tax that is placed on the quantity of the item being purchased,such as gallons of it,is called a(n)

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

Suppose that if your income is $20,000,your tax is $4,000,but if your income is $40,000,your tax is $8,000.Such a tax is

The free-rider dilemma occurs in the provision of public goods because an individual can realize the benefits of someone else's purchase (consumption)of a public good.

The primary function of taxes is to

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

If public goods were marketed like private goods,then

When there is a decrease in the unemployment rate,

The optimal mix of output is the most desirable combination of output attainable with existing

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

Market power creates a flawed response to an accurate price signal.

Social demand is equal to

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

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

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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