Question 1

Which of the following is false?

Accepted Answer

A)  Government can remove individuals from a prisoner's dilemma setting and make them better off. 
B)  In a prisoner's dilemma setting, it is impossible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. 
C)  As long as government charges each individual in a prisoner's dilemma setting a tax that is less than the gain received by being removed from the setting, then government has made the individuals better off. 
D)  Depending upon the amount of the tax charged to each individual in a prisoner's dilemma setting, the government can make both persons better off, both persons worse off, or one person better off and the other person worse off. 
A)  Government can remove individuals from a prisoner's dilemma setting and make them better off. 
B)  In a prisoner's dilemma setting, it is impossible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. 
C)  As long as government charges each individual in a prisoner's dilemma setting a tax that is less than the gain received by being removed from the setting, then government has made the individuals better off. 
D)  Depending upon the amount of the tax charged to each individual in a prisoner's dilemma setting, the government can make both persons better off, both persons worse off, or one person better off and the other person worse off.

Question 2

A divisive society is a nonexcludable public _____________ because it comes with ____________.

Accepted Answer

A)  good; utility 
B)  bad; disutility 
C)  bad; utility 
D)  good; disutility 
A)  good; utility 
B)  bad; disutility 
C)  bad; utility 
D)  good; disutility

Question 3

Some people see the government as being more heavily involved in taking sides than in serving the common interest.

Accepted Answer

A) True 
 B)False

Question 4

In a divisive society the members of groups within the society see themselves as

Accepted Answer

A)  working in harmony with other groups in the society. 
B)  equal to other groups within the society. 
C)  pitted against other groups in the society. 
D)  a and b 
A)  working in harmony with other groups in the society. 
B)  equal to other groups within the society. 
C)  pitted against other groups in the society. 
D)  a and b

Question 5

If the government grants tax credits to first-time homebuyers,the supply of houses would increase and the price of housing would fall.

Accepted Answer

A) True 
 B)False

Question 6

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

A)  external costs are necessarily greater than private costs; government 
B)  social costs equal private costs; no government 
C)  social costs are less than private costs; government 
D)  social costs are greater than private costs; government 
E)  none of the above 
A)  external costs are necessarily greater than private costs; government 
B)  social costs equal private costs; no government 
C)  social costs are less than private costs; government 
D)  social costs are greater than private costs; government 
E)  none of the above

Question 7

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Accepted Answer

A)  external costs are necessarily greater than private costs; government 
B)  social costs equal private costs; no government 
C)  social costs are less than private costs; government 
D)  social costs are greater than private costs; government 
E)  none of the above 
A)  external costs are necessarily greater than private costs; government 
B)  social costs equal private costs; no government 
C)  social costs are less than private costs; government 
D)  social costs are greater than private costs; government 
E)  none of the above

Question 8

Situation 37-2
Dan and Ann live in the same community and both can participate in two activities, producing and stealing.
-Refer to Situation 37-2. Both Dan and Ann realize that they are better off producing and not stealing from each other than producing and stealing from each other. They agree not to steal from each other. There is no enforcer of their agreement to not steal. It is likely that

Accepted Answer

A)  Dan and Ann are in a prisoner's dilemma setting. 
B)  Dan is in a prisoner's dilemma setting but Ann is not. 
C)  Ann is in a prisoner's dilemma setting but Dan is not. 
D)  neither Dan nor Ann is in a prisoner's dilemma setting. 
A)  Dan and Ann are in a prisoner's dilemma setting. 
B)  Dan is in a prisoner's dilemma setting but Ann is not. 
C)  Ann is in a prisoner's dilemma setting but Dan is not. 
D)  neither Dan nor Ann is in a prisoner's dilemma setting.

Question 9

Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease and sets a fine for those people who do not buy insurance. It follows that if the fine is

Accepted Answer

A)  larger than the benefits derived from not buying insurance right away, then people will not buy the insurance and pay the fine. 
B)  smaller than the benefits derived from not buying the insurance right away, then people will not buy the insurance and pay the fine. 
C)  larger than the benefits derived from not buying insurance right away, then people will buy the insurance right away and not pay the fine. 
D)  b and c 
E)  none of the above 
A)  larger than the benefits derived from not buying insurance right away, then people will not buy the insurance and pay the fine. 
B)  smaller than the benefits derived from not buying the insurance right away, then people will not buy the insurance and pay the fine. 
C)  larger than the benefits derived from not buying insurance right away, then people will buy the insurance right away and not pay the fine. 
D)  b and c 
E)  none of the above

Question 10

There is a negative externality,but no positive externality. It follows that

Accepted Answer

A) 	the market outcome is inefficient. 
B) 	the market outcome is efficient. 
C) 	MSC > MPC 
D) 	MPC > MSC 
E) 	a and c 
A) 	the market outcome is inefficient. 
B) 	the market outcome is efficient. 
C) 	MSC > MPC 
D) 	MPC > MSC 
E) 	a and c

Question 11

Person A argues that government is unnecessary and often does more harm than good. Economist A disagrees. What does economist A --- who believes that there is a legitimate case that can be made for government --- most likely say to support his position?

Accepted Answer

A)  Government almost always does more good than harm. 
B)  Without government, life would be anarchy. 
C)  There are some things that individuals want done that can't get done without government. 
D)  There are better people going into government work than are going into the private sector. 
E)  none of the above 
A)  Government almost always does more good than harm. 
B)  Without government, life would be anarchy. 
C)  There are some things that individuals want done that can't get done without government. 
D)  There are better people going into government work than are going into the private sector. 
E)  none of the above

Question 12

Which of the following is true?

Accepted Answer

A)  Special interest groups are more likely to push for policies that increase the size of the economic pie than to increase their slice of the pie. 
B)  Special interest groups are likely to push for policies that increase the size of their slice of the economic pie even if it means that the overall size of the economic pie will shrink. 
C)  Special interest groups are more likely to favor policies that increase the size of their slice of the economic pie than policies that favor economic growth. 
D)  a and c 
E)  b and c 
A)  Special interest groups are more likely to push for policies that increase the size of the economic pie than to increase their slice of the pie. 
B)  Special interest groups are likely to push for policies that increase the size of their slice of the economic pie even if it means that the overall size of the economic pie will shrink. 
C)  Special interest groups are more likely to favor policies that increase the size of their slice of the economic pie than policies that favor economic growth. 
D)  a and c 
E)  b and c

Question 13

Special interest group K receives a 1/100?? slice of the economic pie. Its net benefit from either an economic growth policy or a transfer policy is $200,000. In order for group K to be indifferent between the two policies,the economic growth policy would have to make the size of the economic pie (Real GDP)grow by _________________. This type of analysis is used to show that special interest groups tend to press government for ______________ instead of ________________.

Accepted Answer

A)  $20,000,000; economic growth; transfers 
B)  $2,000,000; transfers; economic growth 
C)  $20,000,000; transfers; economic growth. 
D)  $20,000,000; transfers; economic growth.. 
E)  none of the above 
A)  $20,000,000; economic growth; transfers 
B)  $2,000,000; transfers; economic growth 
C)  $20,000,000; transfers; economic growth. 
D)  $20,000,000; transfers; economic growth.. 
E)  none of the above

Question 14

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy)be worse than the problem (the market failure)?

Accepted Answer

A)  Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality). 
B)  Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
C)  Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
D)  Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality). 
E)  none of the above 
A)  Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality). 
B)  Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
C)  Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
D)  Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality). 
E)  none of the above

Question 15

Situation 37-2
Dan and Ann live in the same community and both can participate in two activities, producing and stealing.
-Refer to Situation 37-2. Ann spends 8 hours of each day producing and 1 hour of each day stealing. It is probably the case for her that

Accepted Answer

A)  at some point the MB/MC ratio for producing fell below the MB/MC ratio for stealing. 
B)  her MB/MC ratio for producing was always greater than her MB/MC ratio for stealing. 
C)  her MB/MC ratio for producing never changed, no matter how much or how little she produced. 
D)  her MB/MC ratio for stealing never changed, no matter how much or how little she stole. 
E)  There is not enough information to answer the question. 
A)  at some point the MB/MC ratio for producing fell below the MB/MC ratio for stealing. 
B)  her MB/MC ratio for producing was always greater than her MB/MC ratio for stealing. 
C)  her MB/MC ratio for producing never changed, no matter how much or how little she produced. 
D)  her MB/MC ratio for stealing never changed, no matter how much or how little she stole. 
E)  There is not enough information to answer the question.

Question 16

Which of the following situations is used as a justification for government?

Accepted Answer

A)  negative externalities 
B)  removal from the prisoner's dilemma 
C)  nonexcludable goods 
D)  positive externalities 
E)  all of the above 
A)  negative externalities 
B)  removal from the prisoner's dilemma 
C)  nonexcludable goods 
D)  positive externalities 
E)  all of the above

Question 17

Exhibit 37-1
  
-Refer to Exhibit 37-1,where the higher the number,the better the position for the person to whom the number is connected. Jaden and Karen have entered into an agreement and are currently in box 1. There is no enforcer to their agreement. Jaden and Karen are likely to

Accepted Answer

A)  remain in box 1. 
B)  move to box 2, because this box is better for Jaden. 
C)  move to box 3, because this box is better for Karen. 
D)  move to box 4. 
E)  There is not enough information to answer the question. 
A)  remain in box 1. 
B)  move to box 2, because this box is better for Jaden. 
C)  move to box 3, because this box is better for Karen. 
D)  move to box 4. 
E)  There is not enough information to answer the question.

Question 18

A community of 100 persons wants to redistribute (transfer)some income from themselves to members of group A. So far,they don't seem to be able to do what they say they want to do. This is most likely because each member of the community of 100 persons sees his contribution as __________________ relative to the total (of contributions)and therefore chooses to be a __________________.

Accepted Answer

A)  large; rent-seeker 
B)  small; rent-seeker 
C)  small; free rider 
D)  large; free rider 
E)  none of the above 
A)  large; rent-seeker 
B)  small; rent-seeker 
C)  small; free rider 
D)  large; free rider 
E)  none of the above

Question 19

Situation 37-2
Dan and Ann live in the same community and both can participate in two activities, producing and stealing.
-Refer to Situation 37-2. If Dan's MB/MC ratio for producing is currently greater than his MB/MC ratio for stealing,then he will

Accepted Answer

A)  steal more and produce less. 
B)  steal less and produce less. 
C)  produce more and steal more. 
D)  produce more and steal less. 
A)  steal more and produce less. 
B)  steal less and produce less. 
C)  produce more and steal more. 
D)  produce more and steal less.

Question 20

If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides),it holds that on net

Accepted Answer

A)  each of the two persons is better off. 
B)  each of the two persons is worse off. 
C)  one person is better off and the other person is worse off. 
D)  a, b, or c 
E)  none of the above 
A)  each of the two persons is better off. 
B)  each of the two persons is worse off. 
C)  one person is better off and the other person is worse off. 
D)  a, b, or c 
E)  none of the above

Exam 37: The Economic Case For and Against Government: Five Topics Considered

Which of the following is false?

A divisive society is a nonexcludable public _____________ because it comes with ____________.

Some people see the government as being more heavily involved in taking sides than in serving the common interest.

In a divisive society the members of groups within the society see themselves as

If the government grants tax credits to first-time homebuyers,the supply of houses would increase and the price of housing would fall.

When a positive externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.

Suppose health-care reform Y makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease and sets a fine for those people who do not buy insurance. It follows that if the fine is

There is a negative externality,but no positive externality. It follows that

Person A argues that government is unnecessary and often does more harm than good. Economist A disagrees. What does economist A --- who believes that there is a legitimate case that can be made for government --- most likely say to support his position?

Which of the following is true?

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome.Under what condition will the solution (the subsidy)be worse than the problem (the market failure)?

Situation 37-2 Dan and Ann live in the same community and both can participate in two activities, producing and stealing. -Refer to Situation 37-2. Ann spends 8 hours of each day producing and 1 hour of each day stealing. It is probably the case for her that

Which of the following situations is used as a justification for government?

Exhibit 37-1 -Refer to Exhibit 37-1,where the higher the number,the better the position for the person to whom the number is connected. Jaden and Karen have entered into an agreement and are currently in box 1. There is no enforcer to their agreement. Jaden and Karen are likely to

Situation 37-2 Dan and Ann live in the same community and both can participate in two activities, producing and stealing. -Refer to Situation 37-2. If Dan's MB/MC ratio for producing is currently greater than his MB/MC ratio for stealing,then he will

If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides),it holds that on net

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

A divisive society is a nonexcludable public _ because it comes with .

When a positive externality exists,_________ and thus _ intervention may be needed to achieve efficiency.

When a negative externality exists,_________ and thus _ intervention may be needed to achieve efficiency.