Question 1

Which of the following might be considered a positive externality?

Accepted Answer

A) the pollination of an orange grove due to bees kept by a nearby beekeeper 
B) individuals who did not get the flu, yet did not receive a flu shot when those around them did receive the shot 
C) better fishing resulting from increased lake temperatures generated by the nearby power plant 
D) All of the above are correct. 
A) the pollination of an orange grove due to bees kept by a nearby beekeeper 
B) individuals who did not get the flu, yet did not receive a flu shot when those around them did receive the shot 
C) better fishing resulting from increased lake temperatures generated by the nearby power plant 
D) All of the above are correct.

Question 2

Mrs. Smith is given a government subsidy for an apartment in a public housing project. The apartment

Accepted Answer

A) is not subject to the principle of rival consumption. 
B) is not a public good. 
C) has widespread benefits and concentrated costs. 
D) is subject to the free-rider problem. 
A) is not subject to the principle of rival consumption. 
B) is not a public good. 
C) has widespread benefits and concentrated costs. 
D) is subject to the free-rider problem.

Question 3

A transfer payment is a payment

Accepted Answer

A) made by the government to its current workers. 
B) associated with items exported to other nations. 
C) for in-kind services provided to the government. 
D) for which no services or goods are rendered. 
A) made by the government to its current workers. 
B) associated with items exported to other nations. 
C) for in-kind services provided to the government. 
D) for which no services or goods are rendered.

Question 4

All of the following generate positive externalities EXCEPT

Accepted Answer

A) public health programs. 
B) lower marginal tax rates. 
C) requiring proof of inoculation before entering college. 
D) requiring proof of inoculation before entering elementary school. 
A) public health programs. 
B) lower marginal tax rates. 
C) requiring proof of inoculation before entering college. 
D) requiring proof of inoculation before entering elementary school.

Question 5

Which of the following is an example of the free-rider problem?

Accepted Answer

A) a neighbor who refuses to help pay for a street light that is intended to help reduce crime 
B) a student who refuses to buy a college catalog 
C) a law enforcement officer who receives a uniform from the police department 
D) a fast food employee who is provided food at work 
A) a neighbor who refuses to help pay for a street light that is intended to help reduce crime 
B) a student who refuses to buy a college catalog 
C) a law enforcement officer who receives a uniform from the police department 
D) a fast food employee who is provided food at work

Question 6

A government-sponsored good is often

Accepted Answer

A) produced by the government. 
B) subsidized. 
C) taxed. 
D) advertised. 
A) produced by the government. 
B) subsidized. 
C) taxed. 
D) advertised.

Question 7

An effluent fee is a

Accepted Answer

A) subsidy given to the producer of a positive externality. 
B) charge to a polluter that gives the right to discharge pollution into the air. 
C) fine imposed on a polluter for dumping illegal pollution. 
D) charge for a public good. 
A) subsidy given to the producer of a positive externality. 
B) charge to a polluter that gives the right to discharge pollution into the air. 
C) fine imposed on a polluter for dumping illegal pollution. 
D) charge for a public good.

Question 8

Explain why an external cost leads to an over-allocation of resources to the production of a good.

Accepted Answer

An external cost is the cost associated

Question 9

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Accepted Answer

A) the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B) the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price. 
A) the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B) the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price.

Question 10

Which of the following is NOT an economic function of government?

Accepted Answer

A) providing a legal system 
B) ensuring economic stability 
C) providing government-inhibited goods 
D) promoting competition 
A) providing a legal system 
B) ensuring economic stability 
C) providing government-inhibited goods 
D) promoting competition

Question 11

Is there any common characteristic shared by government-inhibited goods and government-sponsored goods?
 Explain briefly.

Accepted Answer

Government-inhibited and government-spon

Question 12

Which of the following is a government-inhibited good?

Accepted Answer

A) a lighthouse 
B) national defense 
C) public education 
D) cocaine 
A) a lighthouse 
B) national defense 
C) public education 
D) cocaine

Question 13

A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

Accepted Answer

A) The quantity of chemical solvents produced now will be the efficient amount. 
B) Demand for the chemical solvents will increase. 
C) Demand for the chemical solvents will decrease. 
D) Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected. 
A) The quantity of chemical solvents produced now will be the efficient amount. 
B) Demand for the chemical solvents will increase. 
C) Demand for the chemical solvents will decrease. 
D) Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected.

Question 14

The free-rider problem is encountered when

Accepted Answer

A) someone benefits from the consumption of a public good without paying his or her full share. 
B) all individuals who consume a public good pay for it. 
C) all goods consumed and produced are private goods. 
D) all individuals are willing to pay for what they consume. 
A) someone benefits from the consumption of a public good without paying his or her full share. 
B) all individuals who consume a public good pay for it. 
C) all goods consumed and produced are private goods. 
D) all individuals are willing to pay for what they consume.

Question 15

Medicare subsidies will cause people to

Accepted Answer

A) perceive the price they pay per unit of medical services to be lower than the price received by the provider. 
B) perceive the price they pay per unit of medical services to be higher than the price received by the provider. 
C) perceive the price they pay per unit of medical services to be exactly equal to the price received by the provider. 
D) demand fewer services. 
A) perceive the price they pay per unit of medical services to be lower than the price received by the provider. 
B) perceive the price they pay per unit of medical services to be higher than the price received by the provider. 
C) perceive the price they pay per unit of medical services to be exactly equal to the price received by the provider. 
D) demand fewer services.

Question 16

Government spending as a percent of national income

Accepted Answer

A) peaked during the Reagan administration. 
B) peaked during World War II. 
C) has been steadily climbing since 1850. 
D) has been almost constant this century. 
A) peaked during the Reagan administration. 
B) peaked during World War II. 
C) has been steadily climbing since 1850. 
D) has been almost constant this century.

Question 17

Which of the following does NOT involve transfers in kind?

Accepted Answer

A) public housing 
B) food stamps 
C) Medicare 
D) salaries of government employees 
A) public housing 
B) food stamps 
C) Medicare 
D) salaries of government employees

Question 18

A shift from S₁ to S₂ reflects the change that happens when a negative externality is taken into account. A shift from D₁ to D₂ reflects the change that happens when a positive externality is taken into account.
-Refer to the above figures. A negative externality exists that has not been corrected. Price and quantity will be

Accepted Answer

A) P₁ and Q₁. 
B) P₂ and Q₂. 
C) P₃ and Q₃. 
D) P₄ and Q₄. 
A) P₁ and Q₁. 
B) P₂ and Q₂. 
C) P₃ and Q₃. 
D) P₄ and Q₄.

Question 19

When the price system fails to generate an efficient allocation of resources

Accepted Answer

A) the market will always correct it. 
B) consumers will spend less. 
C) business will produce more. 
D) too few or too many goods will be produced. 
A) the market will always correct it. 
B) consumers will spend less. 
C) business will produce more. 
D) too few or too many goods will be produced.

Question 20

Market failures

Accepted Answer

A) prevent the price system from attaining economic efficiency. 
B) result in quantities and prices that are socially desirable. 
C) strengthen economic efficiency by forcing unprofitable firms to close. 
D) weaken the argument for government intervention in the economy. 
A) prevent the price system from attaining economic efficiency. 
B) result in quantities and prices that are socially desirable. 
C) strengthen economic efficiency by forcing unprofitable firms to close. 
D) weaken the argument for government intervention in the economy.

Which of the following might be considered a positive externality?

Mrs. Smith is given a government subsidy for an apartment in a public housing project. The apartment

A transfer payment is a payment

All of the following generate positive externalities EXCEPT

Which of the following is an example of the free-rider problem?

A government-sponsored good is often

An effluent fee is a

Explain why an external cost leads to an over-allocation of resources to the production of a good.

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Which of the following is NOT an economic function of government?

Is there any common characteristic shared by government-inhibited goods and government-sponsored goods? Explain briefly.

Which of the following is a government-inhibited good?

A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

The free-rider problem is encountered when

Medicare subsidies will cause people to

Government spending as a percent of national income

Which of the following does NOT involve transfers in kind?

When the price system fails to generate an efficient allocation of resources

Market failures

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 5: Public Spending and Public Choice

Which of the following might be considered a positive externality?

Mrs. Smith is given a government subsidy for an apartment in a public housing project. The apartment

A transfer payment is a payment

All of the following generate positive externalities EXCEPT

Which of the following is an example of the free-rider problem?

A government-sponsored good is often

An effluent fee is a

Explain why an external cost leads to an over-allocation of resources to the production of a good.

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Which of the following is NOT an economic function of government?

Is there any common characteristic shared by government-inhibited goods and government-sponsored goods? Explain briefly.

Which of the following is a government-inhibited good?

A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

The free-rider problem is encountered when

Medicare subsidies will cause people to

Government spending as a percent of national income

Which of the following does NOT involve transfers in kind?

When the price system fails to generate an efficient allocation of resources

Market failures

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters