Question 1

Which of the following statements is true?

Accepted Answer

A) Government cannot remove individuals from a prisoner's dilemma setting and make them better off. 
B) As long as government charges each individual a tax that is more than the gain received by being removed from a prisoner's dilemma setting, then government makes that individual better off. 
C) Government can remove individuals from a prisoner's dilemma setting by changing the payoff matrix. 
D) a and c 
E) all of the above 
A) Government cannot remove individuals from a prisoner's dilemma setting and make them better off. 
B) As long as government charges each individual a tax that is more than the gain received by being removed from a prisoner's dilemma setting, then government makes that individual better off. 
C) Government can remove individuals from a prisoner's dilemma setting by changing the payoff matrix. 
D) a and c 
E) all of the above

Question 2

It is possible for the government to remove individuals from a prisoner's dilemma setting and make them better off.

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

An unintended effect of a new tax placed on the producers of good A may include

Accepted Answer

A) a higher price paid by the consumers of good A. 
B) less consumers' surplus for the buyers of good A. 
C) fewer workers employed in the production of good A. 
D) all of the above 
A) a higher price paid by the consumers of good A. 
B) less consumers' surplus for the buyers of good A. 
C) fewer workers employed in the production of good A. 
D) all of the above

Question 5

Consider a setting in which there is a positive externality, but no negative externality. The market outcome is __________________; government can bring about the ___________________ outcome if it sets a subsidy equal to the __________________.

Accepted Answer

A) inefficient; efficient; MEB 
B) inefficient; efficient; MEC 
C) efficient; inefficient; MPC 
D) inefficient; efficient; MPB 
E) inefficient; efficient; MSB 
A) inefficient; efficient; MEB 
B) inefficient; efficient; MEC 
C) efficient; inefficient; MPC 
D) inefficient; efficient; MPB 
E) inefficient; efficient; MSB

Question 6

When a good is nonexcludable, then individuals

Accepted Answer

A) will purchase the good for more than what it cost to produce the good. 
B) can obtain the benefits of the good without paying for it. 
C) have an incentive to become free riders. 
D) will purchase more than the optimum amount. 
E) b and c 
A) will purchase the good for more than what it cost to produce the good. 
B) can obtain the benefits of the good without paying for it. 
C) have an incentive to become free riders. 
D) will purchase more than the optimum amount. 
E) b and c

Question 7

In the case of nonexcludable goods, economists contend that the market ___________ produce these goods because of the ________________________.

Accepted Answer

A) will; free rider problem 
B) will not; law of diminishing marginal utility 
C) will not; law of diminishing marginal returns 
D) will not; free rider problem. 
A) will; free rider problem 
B) will not; law of diminishing marginal utility 
C) will not; law of diminishing marginal returns 
D) will not; free rider problem.

Question 8

A special interest group has a good chance of redistributing (transferring) income from others to itself if the

Accepted Answer

A) costs of the transfer are spread over a very large number of people. 
B) costs of the transfer are spread over a very small number of people. 
C) costs of the transfer are spread over the same number of people that comprise the special interest group. 
D) the number of members in the special interest group is greater than 100. 
E) none of the above 
A) costs of the transfer are spread over a very large number of people. 
B) costs of the transfer are spread over a very small number of people. 
C) costs of the transfer are spread over the same number of people that comprise the special interest group. 
D) the number of members in the special interest group is greater than 100. 
E) none of the above

Question 9

The strongest case for government with respect to a negative externality is that government needs to set the

Accepted Answer

A) subsidy equal to the marginal private benefits. 
B) tax equal to the marginal external costs plus $1. 
C) tax slightly below the marginal external costs. 
D) tax equal to the marginal external costs. 
E) subsidy equal to the marginal social benefits. 
A) subsidy equal to the marginal private benefits. 
B) tax equal to the marginal external costs plus $1. 
C) tax slightly below the marginal external costs. 
D) tax equal to the marginal external costs. 
E) subsidy equal to the marginal social benefits.

Question 10

Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease. One unintended effect of this reform is that some people

Accepted Answer

A) will buy more health insurance than they would have without reform X. 
B) may wait until they have a particular disease before they buy health insurance. 
C) will try to work longer hours, to earn more income, to pay for increasing health insurance premiums. 
D) a and c 
E) none of the above 
A) will buy more health insurance than they would have without reform X. 
B) may wait until they have a particular disease before they buy health insurance. 
C) will try to work longer hours, to earn more income, to pay for increasing health insurance premiums. 
D) a and c 
E) none of the above

Question 11

Why might special interest groups be more likely to push for transfers instead of economic growth? The answer is because it usually takes a much __________________ percentage _______________ in growth to equal what they can get from the transfer.

Accepted Answer

A) smaller; decrease 
B) larger; increase 
C) larger; decrease 
D) smaller; increase 
E) none of the above 
A) smaller; decrease 
B) larger; increase 
C) larger; decrease 
D) smaller; increase 
E) none of the above

Question 12

A consequence of a negative externality is that social costs __________ private costs, and the efficient level of output __________.

Accepted Answer

A) equal; does not require any type of government intervention 
B) are less than; requires the government to create a subsidy 
C) are greater than; requires the government to impose a tax 
D) are greater than; requires the government to create a subsidy 
E) are less than; requires the government to impose a tax 
A) equal; does not require any type of government intervention 
B) are less than; requires the government to create a subsidy 
C) are greater than; requires the government to impose a tax 
D) are greater than; requires the government to create a subsidy 
E) are less than; requires the government to impose a tax

Question 13

In the prisoner's dilemma setting for producing and stealing, a tax imposed on participants could end up changing the payoff matrix so that

Accepted Answer

A) one participant is better off, and one participant is worse off. 
B) both participants are worse off. 
C) both participants are better off. 
D) all of the above are possible 
A) one participant is better off, and one participant is worse off. 
B) both participants are worse off. 
C) both participants are better off. 
D) all of the above are possible

Question 14

Special interest groups are very unlikely to push for policies that increase the size of their slice of the economic pie if it means that the overall size of the economic pie will shrink.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Suppose that for Jim the marginal benefit (MB) of producing is $60 and that the marginal cost (MC) of producing is $10. Suppose also that his marginal benefit of stealing is $50 and the marginal cost of stealing is $10. Is Jim currently maximizing utility in terms of producing and stealing? If not, should he produce more and steal less, or produce less and steal more to move toward utility maximization?

Accepted Answer

A) Yes, Jim is maximizing utility. 
B) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Jim should produce more and steal less. 
C) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should produce more and steal less. 
D) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should steal more and produce less. 
A) Yes, Jim is maximizing utility. 
B) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Jim should produce more and steal less. 
C) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should produce more and steal less. 
D) No, Jim is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Jim should steal more and produce less.

Question 17

In the case of a positive externality, in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

Accepted Answer

A) tax; external costs 
B) tax; external benefits 
C) subsidy; external costs 
D) subsidy; external benefits 
E) subsidy; private costs 
A) tax; external costs 
B) tax; external benefits 
C) subsidy; external costs 
D) subsidy; external benefits 
E) subsidy; private costs

Question 18

When positive or negative externalities exists in the production of a good, the market outcome is an inefficient outcome.

Accepted Answer

A) True 
 B)False

Question 19

Economist B thinks that it is important to identify the condition(s) under which the case for government is strongest. With respect to the provision of nonexcludable public goods, she says

Accepted Answer

A) people must pay taxes to pay for the nonexcludable public good. 
B) firms must pay taxes to pay for the nonexcludable public good. 
C) people must actually want the nonexcludable public good that the government provides. 
D) people must express their desire for the nonexcludable public good by voting for it. 
E) none of the above 
A) people must pay taxes to pay for the nonexcludable public good. 
B) firms must pay taxes to pay for the nonexcludable public good. 
C) people must actually want the nonexcludable public good that the government provides. 
D) people must express their desire for the nonexcludable public good by voting for it. 
E) none of the above

Question 20

Government provides a nonexcludable public good that no one wants. This situation is most closely related with:

Accepted Answer

A) government solving a market failure. 
B) government failure. 
C) market failure. 
D) the market solving a government failure. 
A) government solving a market failure. 
B) government failure. 
C) market failure. 
D) the market solving a government failure.

Exam 35: The Economic Case for and Against Government Five Topics Considered

Which of the following statements is true?

It is possible for the government to remove individuals from a prisoner's dilemma setting and make them better off.

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

An unintended effect of a new tax placed on the producers of good A may include

Consider a setting in which there is a positive externality, but no negative externality. The market outcome is __________________; government can bring about the ___________________ outcome if it sets a subsidy equal to the __________________.

When a good is nonexcludable, then individuals

In the case of nonexcludable goods, economists contend that the market ___________ produce these goods because of the ________________________.

A special interest group has a good chance of redistributing (transferring) income from others to itself if the

The strongest case for government with respect to a negative externality is that government needs to set the

Suppose health-care reform X makes it unlawful for insurance companies to deny insurance to persons with a preexisting disease. One unintended effect of this reform is that some people

Why might special interest groups be more likely to push for transfers instead of economic growth? The answer is because it usually takes a much __________________ percentage _______________ in growth to equal what they can get from the transfer.

A consequence of a negative externality is that social costs __________ private costs, and the efficient level of output __________.

In the prisoner's dilemma setting for producing and stealing, a tax imposed on participants could end up changing the payoff matrix so that

Special interest groups are very unlikely to push for policies that increase the size of their slice of the economic pie if it means that the overall size of the economic pie will shrink.

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

In the case of a positive externality, in order to achieve efficiency the government must set the _________________ equal to the marginal ____________________.

When positive or negative externalities exists in the production of a good, the market outcome is an inefficient outcome.

Economist B thinks that it is important to identify the condition(s) under which the case for government is strongest. With respect to the provision of nonexcludable public goods, she says

Government provides a nonexcludable public good that no one wants. This situation is most closely related with:

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

Stocks Bonds Futures and Options

Filters

Consider a setting in which there is a positive externality, but no negative externality. The market outcome is ________; government can bring about the _ outcome if it sets a subsidy equal to the __________.

In the case of nonexcludable goods, economists contend that the market _ produce these goods because of the ______________.

Why might special interest groups be more likely to push for transfers instead of economic growth? The answer is because it usually takes a much ____ percentage _ in growth to equal what they can get from the transfer.

A consequence of a negative externality is that social costs private costs, and the efficient level of output .

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

In the case of a positive externality, in order to achieve efficiency the government must set the _ equal to the marginal ____.