Question 1

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

A)  bringing industry experts into the regulatory process 
B)  creating a standard set of regulations for all industries 
C)  deregulation of the industry 
D)  government subsidies for ﬁrms in the industry 
A)  bringing industry experts into the regulatory process 
B)  creating a standard set of regulations for all industries 
C)  deregulation of the industry 
D)  government subsidies for ﬁrms in the industry

Question 2

The market system does not produce public goods because

Accepted Answer

A)  there is no need or demand for such goods. 
B)  private ﬁrms cannot stop consumers who are unwilling to pay for such goods from beneﬁting from them. 
C)  public enterprises can produce such goods at lower cost than can private enterprises. 
D)  their production seriously distorts the distribution of income. 
A)  there is no need or demand for such goods. 
B)  private ﬁrms cannot stop consumers who are unwilling to pay for such goods from beneﬁting from them. 
C)  public enterprises can produce such goods at lower cost than can private enterprises. 
D)  their production seriously distorts the distribution of income.

Question 3

Refer to the table. In a choice between public safety and parks,

Accepted Answer

A)  the outcome would depend on which item was listed ﬁrst on the ballot. 
B)  a majority of voters would favor public safety. 
C)  no voter decision is possible. 
D)  a majority of voters would favor parks. 
A)  the outcome would depend on which item was listed ﬁrst on the ballot. 
B)  a majority of voters would favor public safety. 
C)  no voter decision is possible. 
D)  a majority of voters would favor parks.

Question 4

Deregulation of an industry will always lead to an improvement in economic eﬃciency.

Accepted Answer

A) True 
 B)False

Question 5

As it relates to corporations, the principal-agent problem is that

Accepted Answer

A)  the goals of the corporate managers (the principals) may not match the goals of the corporate owners (the agents). 
B)  the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals). 
C)  the federal government (the agent) taxes both corporate proﬁts and the dividends paid to stockholders (the principals). 
D)  it is costly for the corporate owners (the principals) to obtain a corporate charter from government (the agent). 
A)  the goals of the corporate managers (the principals) may not match the goals of the corporate owners (the agents). 
B)  the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals). 
C)  the federal government (the agent) taxes both corporate proﬁts and the dividends paid to stockholders (the principals). 
D)  it is costly for the corporate owners (the principals) to obtain a corporate charter from government (the agent).

Question 6

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a
ﬁreworks display, then we have a demand-side market failure.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the provided supply and demand graph for a public good. If Q1 units of the public good are produced, then

Accepted Answer

A)  users are willing to pay more for the public good than it costs to produce it. 
B)  users are willing to pay less for the public good than it costs to produce it. 
C)  there is an overallocation of resources toward producing this public good. 
D)  allocative eﬃciency is achieved in the market. 
A)  users are willing to pay more for the public good than it costs to produce it. 
B)  users are willing to pay less for the public good than it costs to produce it. 
C)  there is an overallocation of resources toward producing this public good. 
D)  allocative eﬃciency is achieved in the market.

Question 8

Demand-side market failures occur when

Accepted Answer

A)  demand curves don't reﬂect consumers' full willingness to pay for a good or service. 
B)  demand curves don't reﬂect the full cost of producing a good or service. 
C)  government imposes a tax on a good or service. 
D)  a good or service is not produced because no one wants it. 
A)  demand curves don't reﬂect consumers' full willingness to pay for a good or service. 
B)  demand curves don't reﬂect the full cost of producing a good or service. 
C)  government imposes a tax on a good or service. 
D)  a good or service is not produced because no one wants it.

Question 9

The following data are for a series of increasingly extensive ?ood-control projects. $$\begin{array} { | l | c | c | } 
\hline & \text { Total Cost per Year } & \text { Total Benefit per Year } \
\hline \text { Plan } A = \text { Levees } & \$ 10,000 & \$ 16,000 \
\hline \text { Plan } B = \text { Small Reservoir } & 24,000 & 36,000 \
\hline \text { Plan } C = \text { Medium Reservoir } & 44,000 & 52,000 \
\hline \text { Plan } D = \text { Large Reservoir } & 72,000 & 64,000 \
\hline
\end{array}$$ On the basis of cost-bene?t analysis, government should undertake

Accepted Answer

A)  Plan D. 
B)  Plan C. 
C)  Plan B. 
D)  Plan A. 
A)  Plan D. 
B)  Plan C. 
C)  Plan B. 
D)  Plan A.

Question 10

The Securities and Exchange Commission's supervision of Wall Street ﬁnancial ﬁrms is a possible example of
regulatory capture.

Accepted Answer

A) True 
 B)False

Question 11

Problems with government decision making, politics, and elections are subjects that are studied in an area of economics called public

Accepted Answer

A)  ﬁnance. 
B)  choice. 
C)  policy. 
D)  interest. 
A)  ﬁnance. 
B)  choice. 
C)  policy. 
D)  interest.

Question 12

Government can reallocate resources away from private goods toward public goods, usually through

Accepted Answer

A)  import tariffs and quotas. 
B)  the laws of supply and demand. 
C)  taxes and government spending. 
D)  positive and negative externalities. 
A)  import tariffs and quotas. 
B)  the laws of supply and demand. 
C)  taxes and government spending. 
D)  positive and negative externalities.

Question 13

(Consider This) According to a study of hospitals, power plants, and water utilities, health and safety violations are more prevalent in public companies because

Accepted Answer

A)  private companies have greater technical expertise than public companies. 
B)  public companies are less likely to be ﬁned for violating health and safety laws than private companies. 
C)  laws for public companies are more stringent, making it more diﬃcult for public companies to comply. 
D)  public companies are more closely monitored, making it easier to detect violations. 
A)  private companies have greater technical expertise than public companies. 
B)  public companies are less likely to be ﬁned for violating health and safety laws than private companies. 
C)  laws for public companies are more stringent, making it more diﬃcult for public companies to comply. 
D)  public companies are more closely monitored, making it easier to detect violations.

Question 14

"Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reﬂects

Accepted Answer

A)  the paradox of voting. 
B)  logrolling. 
C)  the beneﬁts-received principle. 
D)  adverse selection. 
A)  the paradox of voting. 
B)  logrolling. 
C)  the beneﬁts-received principle. 
D)  adverse selection.

Question 15

Which of the following would be an avenue for resolving the ineﬃciencies associated with majority voting?

Accepted Answer

A)  political logrolling 
B)  progressive taxation 
C)  proportional taxation 
D)  the paradox of voting 
A)  political logrolling 
B)  progressive taxation 
C)  proportional taxation 
D)  the paradox of voting

Question 16

Which of the following statements is not true?

Accepted Answer

A)  Some public goods are paid for by private philanthropy. 
B)  Private provision of public goods is usually unproﬁtable. 
C)  The free-rider problem results from the characteristics of nonrivalry and nonexcludability. 
D)  Public goods are only provided by government. 
A)  Some public goods are paid for by private philanthropy. 
B)  Private provision of public goods is usually unproﬁtable. 
C)  The free-rider problem results from the characteristics of nonrivalry and nonexcludability. 
D)  Public goods are only provided by government.

Question 17

(Last Word) Location subsidies have been found to be largely a waste of taxpayer money.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the provided supply and demand graph for a public good. Point c on the graph shows where the

Accepted Answer

A)  total beneﬁt equals the total cost of the public good. 
B)  marginal beneﬁt equals the marginal cost of the public good. 
C)  average beneﬁt equals the average cost of the public good. 
D)  total beneﬁt of the public good is at the maximum. 
A)  total beneﬁt equals the total cost of the public good. 
B)  marginal beneﬁt equals the marginal cost of the public good. 
C)  average beneﬁt equals the average cost of the public good. 
D)  total beneﬁt of the public good is at the maximum.

Question 19

The special-interest effect in government decision making is signiﬁcant because

Accepted Answer

A)  it corrects instances of spillover costs and beneﬁts. 
B)  it can lead to programs with concentrated beneﬁts and diffuse costs. 
C)  capitalistic economies are based upon the pursuit of self-interest. 
D)  it allows us to avoid the collective-action problem. 
A)  it corrects instances of spillover costs and beneﬁts. 
B)  it can lead to programs with concentrated beneﬁts and diffuse costs. 
C)  capitalistic economies are based upon the pursuit of self-interest. 
D)  it allows us to avoid the collective-action problem.

Question 20

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The beneﬁt of the public good
Is $500 for Matt, $280 for Joe, and $260 for Teresa. In a majority vote, this proposal will most likely be

Accepted Answer

A)  accepted, two in favor and one against. 
B)  defeated, two against and one in favor. 
C)  accepted, three in favor and none against. 
D)  defeated, none in favor and three against. 
A)  accepted, two in favor and one against. 
B)  defeated, two against and one in favor. 
C)  accepted, three in favor and none against. 
D)  defeated, none in favor and three against.

Which of the following is considered a potential solution to some regulatory capture?

The market system does not produce public goods because

Refer to the table. In a choice between public safety and parks,

Deregulation of an industry will always lead to an improvement in economic eﬃciency.

As it relates to corporations, the principal-agent problem is that

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a ﬁreworks display, then we have a demand-side market failure.

Refer to the provided supply and demand graph for a public good. If Q1 units of the public good are produced, then

Demand-side market failures occur when

The Securities and Exchange Commission's supervision of Wall Street ﬁnancial ﬁrms is a possible example of regulatory capture.

Problems with government decision making, politics, and elections are subjects that are studied in an area of economics called public

Government can reallocate resources away from private goods toward public goods, usually through

(Consider This) According to a study of hospitals, power plants, and water utilities, health and safety violations are more prevalent in public companies because

"Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reﬂects

Which of the following would be an avenue for resolving the ineﬃciencies associated with majority voting?

Which of the following statements is not true?

(Last Word) Location subsidies have been found to be largely a waste of taxpayer money.

Refer to the provided supply and demand graph for a public good. Point c on the graph shows where the

The special-interest effect in government decision making is signiﬁcant because

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 5: Public Goods, Public Choice, and Government Failure

Which of the following is considered a potential solution to some regulatory capture?

The market system does not produce public goods because

Refer to the table. In a choice between public safety and parks,

Deregulation of an industry will always lead to an improvement in economic eﬃciency.

As it relates to corporations, the principal-agent problem is that

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a ﬁreworks display, then we have a demand-side market failure.

Refer to the provided supply and demand graph for a public good. If Q1 units of the public good are produced, then

Demand-side market failures occur when

The Securities and Exchange Commission's supervision of Wall Street ﬁnancial ﬁrms is a possible example of regulatory capture.

Problems with government decision making, politics, and elections are subjects that are studied in an area of economics called public

Government can reallocate resources away from private goods toward public goods, usually through

(Consider This) According to a study of hospitals, power plants, and water utilities, health and safety violations are more prevalent in public companies because

"Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reﬂects

Which of the following would be an avenue for resolving the ineﬃciencies associated with majority voting?

Which of the following statements is not true?

(Last Word) Location subsidies have been found to be largely a waste of taxpayer money.

Refer to the provided supply and demand graph for a public good. Point c on the graph shows where the

The special-interest effect in government decision making is signiﬁcant because

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters