Question 1

-Refer to the above figure. In the absence of a subsidy,

Accepted Answer

A) Qd would be demanded and QM would be supplied. 
B) the price Pd would be charged and quantity QM demanded. 
C) the quantity Qₒ and price Pₒ would prevail in the market. 
D) None of the above is correct. 
A) Qd would be demanded and QM would be supplied. 
B) the price Pd would be charged and quantity QM demanded. 
C) the quantity Qₒ and price Pₒ would prevail in the market. 
D) None of the above is correct.

Question 2

If a corporation were forced to absorb the cost of a spillover from the production of a good, this would likely cause the supply curve for the good to

Accepted Answer

A) shift out. 
B) shift to the left. 
C) shift to the right. 
D) None of the above are correct. 
A) shift out. 
B) shift to the left. 
C) shift to the right. 
D) None of the above are correct.

Question 3

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

Accepted Answer

A) less than the price that consumers pay to receive educational services. 
B) less than the amount of the per-unit subsidy that the schools receive. 
C) greater than the market clearing price without the subsidy. 
D) equal to zero. 
A) less than the price that consumers pay to receive educational services. 
B) less than the amount of the per-unit subsidy that the schools receive. 
C) greater than the market clearing price without the subsidy. 
D) equal to zero.

Question 4

Public goods are unlikely to be provided by the private sector because

Accepted Answer

A) the production of the good creates negative externalities. 
B) no one can be excluded from the consumption of the good. 
C) the consumption of the good creates negative externalities. 
D) the exclusion principle does not apply to public goods. 
A) the production of the good creates negative externalities. 
B) no one can be excluded from the consumption of the good. 
C) the consumption of the good creates negative externalities. 
D) the exclusion principle does not apply to public goods.

Question 5

An externality can best be defined as

Accepted Answer

A) a party not directly involved in a transaction. 
B) a consequence of a transaction that spills over to affect third parties. 
C) a right of an owner to use and exchange property. 
D) a cost associated with the production of one more unit of output. 
A) a party not directly involved in a transaction. 
B) a consequence of a transaction that spills over to affect third parties. 
C) a right of an owner to use and exchange property. 
D) a cost associated with the production of one more unit of output.

Question 6

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

Accepted Answer

A) when the good being produced or consumed is not scarce 
B) when the good being produced or consumed generates a negative externality 
C) when the good being produced or consumed generates a positive externality 
D) when the equilibrium price of the good is one that consumers don't like 
A) when the good being produced or consumed is not scarce 
B) when the good being produced or consumed generates a negative externality 
C) when the good being produced or consumed generates a positive externality 
D) when the equilibrium price of the good is one that consumers don't like

Question 7

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. An external benefit exists. This will lead to a(n)

Accepted Answer

A) underproduction equal to Q₁ minus Q₂. 
B) overproduction equal to Q₄ minus Q₃. 
C) underproduction equal to Q₄ minus Q₃. 
D) overproduction equal to Q₁ minus Q₂. 
A) underproduction equal to Q₁ minus Q₂. 
B) overproduction equal to Q₄ minus Q₃. 
C) underproduction equal to Q₄ minus Q₃. 
D) overproduction equal to Q₁ minus Q₂.

Question 8

What are the three goals of the Employment Act of 1946?

Accepted Answer

A) keep the peace, improve public education, and protect the environment 
B) improve the education system, provide more job training, and expand the number of government jobs 
C) full employment, price stability, and economic growth 
D) full employment, better schools, and lower income taxes 
A) keep the peace, improve public education, and protect the environment 
B) improve the education system, provide more job training, and expand the number of government jobs 
C) full employment, price stability, and economic growth 
D) full employment, better schools, and lower income taxes

Question 9

What is the consequence of a positive externality in a market?
 What is the consequence of a negative externality?
 Why those consequences occur?

Accepted Answer

A positive externality leads to the equi

Question 10

Which of the following goods is NOT subject to the free-rider problem?

Accepted Answer

A) national defense 
B) the local police force 
C) public fireworks 
D) a public transit system 
A) national defense 
B) the local police force 
C) public fireworks 
D) a public transit system

Question 11

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

Accepted Answer

A) The good is priced too low. 
B) An external benefit is associated with good X. 
C) Resources are over-allocated in the production of good X. 
D) Too much of good X is being produced. 
A) The good is priced too low. 
B) An external benefit is associated with good X. 
C) Resources are over-allocated in the production of good X. 
D) Too much of good X is being produced.

Question 12

When misallocation of resources for production of a good results in spillover effects on third parties, there is a

Accepted Answer

A) market failure. 
B) government failure. 
C) legislative failure. 
D) productive failure. 
A) market failure. 
B) government failure. 
C) legislative failure. 
D) productive failure.

Question 13

-According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₂ - Q₁. 
D) none of the above. 
A) Q₁. 
B) Q₂. 
C) Q₂ - Q₁. 
D) none of the above.

Question 14

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

Accepted Answer

A) setting the price at P₁. 
B) establishing a tax of P₃ - P₁ per unit of the good sold. 
C) establishing a tax of P₃ - P₂ per unit of the good sold. 
D) setting the price at P₄. 
A) setting the price at P₁. 
B) establishing a tax of P₃ - P₁ per unit of the good sold. 
C) establishing a tax of P₃ - P₂ per unit of the good sold. 
D) setting the price at P₄.

Question 15

Markets tend to underallocate resources to the production of a good when

Accepted Answer

A) there are negative externalities. 
B) there are positive externalities. 
C) there are public goods produced. 
D) equilibrium occurs. 
A) there are negative externalities. 
B) there are positive externalities. 
C) there are public goods produced. 
D) equilibrium occurs.

Question 16

Compared with the market clearing price of a health care service covered by Medicare, the Medicare program pays a ________ price to health care providers and charges a ________ price to consumers.

Accepted Answer

A) lower, lower 
B) lower, higher 
C) higher, lower 
D) higher, higher 
A) lower, lower 
B) lower, higher 
C) higher, lower 
D) higher, higher

Question 17

Which of the following is TRUE about the political and market systems of voting?

Accepted Answer

A) The political voting system functions according to proportional rule, while the market voting system functions according to majority rule. 
B) The political voting system functions according to majority rule, while the market voting system functions according to proportional rule. 
C) The political voting system functions according to minority rule, while the market voting system functions according to majority rule. 
D) The political system and the market system are identical. 
A) The political voting system functions according to proportional rule, while the market voting system functions according to majority rule. 
B) The political voting system functions according to majority rule, while the market voting system functions according to proportional rule. 
C) The political voting system functions according to minority rule, while the market voting system functions according to majority rule. 
D) The political system and the market system are identical.

Question 18

Market failures include all of the following EXCEPT

Accepted Answer

A) equalization of quantity supplied and quantity demanded. 
B) public goods. 
C) positive externalities. 
D) negative externalities. 
A) equalization of quantity supplied and quantity demanded. 
B) public goods. 
C) positive externalities. 
D) negative externalities.

Question 19

To an economist, a free rider is a person who

Accepted Answer

A) uses private goods without paying for them. 
B) benefits from consuming public goods without paying for them. 
C) consumes demerit goods. 
D) uses the public transportation system without paying for it. 
A) uses private goods without paying for them. 
B) benefits from consuming public goods without paying for them. 
C) consumes demerit goods. 
D) uses the public transportation system without paying for it.

Question 20

What is one result of the Medicare subsidy?

Accepted Answer

A) The health care industry is more efficient than it otherwise would be. 
B) Patients may elect to have some treatments that are of low value to them but that are costly to provide. 
C) The elderly population in the United States receives a lower quality of medical care than what is provided for the elderly population in other countries. 
D) The number of physicians in the United States has declined. 
A) The health care industry is more efficient than it otherwise would be. 
B) Patients may elect to have some treatments that are of low value to them but that are costly to provide. 
C) The elderly population in the United States receives a lower quality of medical care than what is provided for the elderly population in other countries. 
D) The number of physicians in the United States has declined.

-Refer to the above figure. In the absence of a subsidy,

If a corporation were forced to absorb the cost of a spillover from the production of a good, this would likely cause the supply curve for the good to

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

Public goods are unlikely to be provided by the private sector because

An externality can best be defined as

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

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. An external benefit exists. This will lead to a(n)

What are the three goals of the Employment Act of 1946?

What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why those consequences occur?

Which of the following goods is NOT subject to the free-rider problem?

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

When misallocation of resources for production of a good results in spillover effects on third parties, there is a

-According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

Markets tend to underallocate resources to the production of a good when

Compared with the market clearing price of a health care service covered by Medicare, the Medicare program pays a price to health care providers and charges a price to consumers.

Which of the following is TRUE about the political and market systems of voting?

Market failures include all of the following EXCEPT

To an economist, a free rider is a person who

What is one result of the Medicare subsidy?

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

-Refer to the above figure. In the absence of a subsidy,

If a corporation were forced to absorb the cost of a spillover from the production of a good, this would likely cause the supply curve for the good to

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

Public goods are unlikely to be provided by the private sector because

An externality can best be defined as

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

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. An external benefit exists. This will lead to a(n)

What are the three goals of the Employment Act of 1946?

What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why those consequences occur?

Which of the following goods is NOT subject to the free-rider problem?

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

When misallocation of resources for production of a good results in spillover effects on third parties, there is a

-According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

Markets tend to underallocate resources to the production of a good when

Compared with the market clearing price of a health care service covered by Medicare, the Medicare program pays a ________ price to health care providers and charges a ________ price to consumers.

Which of the following is TRUE about the political and market systems of voting?

Market failures include all of the following EXCEPT

To an economist, a free rider is a person who

What is one result of the Medicare subsidy?

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

Compared with the market clearing price of a health care service covered by Medicare, the Medicare program pays a price to health care providers and charges a price to consumers.