Exam 5: Public Spending and Public Choice

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. Externalities exist in both panels. After correcting for the externalities the prices should be

To correct for positive externalities the government

When positive externalities exist, the private market equilibrium represents a

A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals

The free-rider problem is

The concept that Mr. Jones is going to enjoy the benefits of police protection even though he no longer pays taxes is called

When a person throws a cigarette out of a car window and starts a brush fire, this is

Which one of the following is NOT a characteristic of public goods?

An external cost, such as the cost generated by pollution, is

The market and public sector are similar in that

A government subsidy is typically used

When government intervenes in the production process because external benefits exist, it typically attempts

A government-sponsored good is one that

An example of third parties in the market of automobiles is

The non-exclusion principle means

Which of the following would be classified as a public good?

A free rider is someone who

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

When there is an external benefit, the unregulated market

The distinguishing characteristic of private goods is that