Question 1

The most appropriate level of government to provide public goods is:

Accepted Answer

A) local. 
B) state. 
C) dependent on the specific public good in question. 
D) federal. 
A) local. 
B) state. 
C) dependent on the specific public good in question. 
D) federal.

Question 2

The negative effect of a tax on the economic surplus of participants in a market should:

Accepted Answer

A) be enough to convince the government that the tax is a bad idea. 
B) be weighed against the potential benefits of the public goods financed by the tax. 
C) insure that the tax will never be approved by voters. 
D) be ignored if the government needs to generate tax revenue. 
A) be enough to convince the government that the tax is a bad idea. 
B) be weighed against the potential benefits of the public goods financed by the tax. 
C) insure that the tax will never be approved by voters. 
D) be ignored if the government needs to generate tax revenue.

Question 3

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.   Collectively, the residents of Towneburg would be willing to pay ________ for the 10ᵗʰ shell, and the marginal cost of the 10ᵗʰ shell is ________.

Accepted Answer

A) $30; $100 
B) $600; $1,100 
C) $30; $10 
D) $600; $10 
A) $30; $100 
B) $600; $1,100 
C) $30; $10 
D) $600; $10

Question 4

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C.   If the good shown on the graphs is a public good, then the marginal benefit of the 30ᵗʰ unit is:

Accepted Answer

A) $30 
B) $9 
C) $4 
D) $2 
A) $30 
B) $9 
C) $4 
D) $2

Question 5

If the government taxes a good that generates a negative externality, then the government:

Accepted Answer

A) will generate tax revenue, but lower economic surplus. 
B) can increase total economic surplus, but tax revenue will fall. 
C) can increase total economic surplus and generate tax revenue. 
D) will neither increase total economic surplus nor generate tax revenue. 
A) will generate tax revenue, but lower economic surplus. 
B) can increase total economic surplus, but tax revenue will fall. 
C) can increase total economic surplus and generate tax revenue. 
D) will neither increase total economic surplus nor generate tax revenue.

Question 6

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.   Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ________ acres.

Accepted Answer

A) 2 
B) 4 
C) 6 
D) 8 
A) 2 
B) 4 
C) 6 
D) 8

Question 7

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning.  
Suppose MegaCable spends $2,000,002 on lobbying, and Acme spends $2,000,001 on lobbying. In this case, MegaCable's economic profit net of its lobbying costs will be ________, and Acme's economic profit net of its lobbying costs will be ________.

Accepted Answer

A) $5 million; 0 
B) $2,999,998; -$2,000,001 
C) $2.5 million; $2.5 million 
D) $499,998; -$2,000,001 
A) $5 million; 0 
B) $2,999,998; -$2,000,001 
C) $2.5 million; $2.5 million 
D) $499,998; -$2,000,001

Question 8

Clint, Lee and Eli are the only three residents of the village of Fantasma. They are considering whether to construct a hiking trail in the mountains surrounding the village. Because congestion on the trail is unlikely, it would be nonrival. Clint values the trail at $300 per month, Lee values the trail at $100 per month, and Eli values the trail at $80 per month. The cost of building and maintaining the trail is $420 per month. If Clint proposes a tax whereby all three of them split the cost of the trail equally, then will the majority of them support this tax?

Accepted Answer

A) No, because building the trail is not socially optimal. 
B) No, even though building the trail is socially optimal. 
C) Yes, even though building the trail is not socially optimal. 
D) Yes, because building the trail is socially optimal. 
A) No, because building the trail is not socially optimal. 
B) No, even though building the trail is socially optimal. 
C) Yes, even though building the trail is not socially optimal. 
D) Yes, because building the trail is socially optimal.

Question 9

Josh pays $6,000 in taxes and earns $60,000. Maggie pays $4,000 in taxes. If the tax system is progressive, then Maggie earns:

Accepted Answer

A) $40,000. 
B) more than $40,000 but less than $60,000. 
C) less than $40,000. 
D) more than $60,000. 
A) $40,000. 
B) more than $40,000 but less than $60,000. 
C) less than $40,000. 
D) more than $60,000.

Question 10

Pork barrel programs are government programs that:

Accepted Answer

A) benefit agriculture. 
B) increase total economic surplus but lack political support. 
C) benefit industry. 
D) benefit local areas but are of questionable value from a national perspective. 
A) benefit agriculture. 
B) increase total economic surplus but lack political support. 
C) benefit industry. 
D) benefit local areas but are of questionable value from a national perspective.

Question 11

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then:

Accepted Answer

A) the benefit of the park is less than the cost of the park, so the park should not be built. 
B) some sort of collective action by voters will be necessary to fund the park. 
C) a private firm will have an incentive to build the park. 
D) the park will never be built. 
A) the benefit of the park is less than the cost of the park, so the park should not be built. 
B) some sort of collective action by voters will be necessary to fund the park. 
C) a private firm will have an incentive to build the park. 
D) the park will never be built.

Question 12

Suppose Scott's demand for a public good is P = 7 - 0.3Q and Mike's demand is P = 10 - 1.5Q. The equation for the total demand for the public good is:

Accepted Answer

A) P = 20 - 3.0Q. 
B) P = 17 - 1.8Q. 
C) P = 3 - 1.2Q. 
D) P = 14 - 0.6Q. 
A) P = 20 - 3.0Q. 
B) P = 17 - 1.8Q. 
C) P = 3 - 1.2Q. 
D) P = 14 - 0.6Q.

Question 13

The demand curve for a public good is constructed by:

Accepted Answer

A) summing voters' desired quantity of the public good at each price. 
B) surveying voters on how much of a particular public good they would use at each price. 
C) summing voters' reservation prices at each quantity. 
D) dividing the total cost of providing the public good by the number of potential users. 
A) summing voters' desired quantity of the public good at each price. 
B) surveying voters on how much of a particular public good they would use at each price. 
C) summing voters' reservation prices at each quantity. 
D) dividing the total cost of providing the public good by the number of potential users.

Question 14

If all taxpayers pay the same percentage of their income in taxes, the tax is termed a(n):

Accepted Answer

A) proportional tax. 
B) progressive tax. 
C) head tax. 
D) per unit tax. 
A) proportional tax. 
B) progressive tax. 
C) head tax. 
D) per unit tax.

Question 15

MegaCable and Acme are competing for an exclusive contract to provide the city of Dustin with cable television for the next year. The firm that wins the contract will earn an economic profit of $5 million. The contact will be awarded to the firm that spends the most on lobbying. If both firms spend the same amount on lobbying, then the winner will be determined by a coin flip, so each will have a 50 percent chance of winning.  
Suppose MegaCable spends $2 on lobbying, and Acme spends $1 on lobbying. In this case, MegaCable's economic profit net of its lobbying costs will be ________, and Acme's economic profit net of its lobbying costs will be ________.

Accepted Answer

A) $4,999,998; -$1 
B) $5 million; -$1 
C) $2.5 million; $2.5 million 
D) 0; $5 million 
A) $4,999,998; -$1 
B) $5 million; -$1 
C) $2.5 million; $2.5 million 
D) 0; $5 million

Question 16

There are ten states in the democratic nation of Katlandia, and each state has ten thousand residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state's local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown below. The total cost of an army base is $8 million per year.   It is socially optimal for Katlandia to have:

Accepted Answer

A) one army base. 
B) two army bases. 
C) three army bases. 
D) four army bases. 
A) one army base. 
B) two army bases. 
C) three army bases. 
D) four army bases.

Question 17

Consider a laboratory experiment in which subjects are given the chance to bid on a $20 bill. The initial bid must be at least 50 cents, and each succeeding bid must exceed the previous bid by 50 cents. The rules of the auction specify that when the bidding ceases, the $20 bill will be given to the top bidder, and both the highest bidder and the second highest bidder must pay their final bid. In experimental settings such as this, researchers have found that:

Accepted Answer

A) the sum of the top two bids is typically less than $20. 
B) no one wants to participate in the auction. 
C) the sum of the top two bids typically exceeds $20 
D) the top bid is exactly $20 
A) the sum of the top two bids is typically less than $20. 
B) no one wants to participate in the auction. 
C) the sum of the top two bids typically exceeds $20 
D) the top bid is exactly $20

Question 18

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell.   Suppose 10 shells have been fired off. What is the marginal cost of firing off one more shell?

Accepted Answer

A) $0 
B) $10 
C) $25 
D) $100 
A) $0 
B) $10 
C) $25 
D) $100

Question 19

One disadvantage of using the government to provide pure public goods is that everyone receives ________ of the public good and has ________ for the public good.

Accepted Answer

A) a different amount; a different reservation price 
B) a different amount; the same reservation price 
C) the same amount; a different reservation price 
D) the same amount; the same reservation price 
A) a different amount; a different reservation price 
B) a different amount; the same reservation price 
C) the same amount; a different reservation price 
D) the same amount; the same reservation price

Question 20

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. $$\begin{array} { | l | c | } 
\hline { \text { Vater } } & \text { Marginal Benefit } \
\hline \text { Kyle } & \$ 420 \
\hline \text { Dylarn } & \$ 360 \
\hline \text { Frar1 } & \$ 350 \
\hline \text { Rorruie } & \$ 190 \
\hline \text { Sarn } & \$ 170 \
\hline
\end{array}$$  
Building the swimming pool would ________ total economic surplus because ________.

Accepted Answer

A) decrease; the total cost of the pool is greater than the total social benefit of the pool 
B) decrease; taxes would have to be collected to build the pool 
C) increase; the total social benefit of the pool is greater than the total cost of the pool 
D) increase; the cost of building the pool can be passed to users from other towns 
A) decrease; the total cost of the pool is greater than the total social benefit of the pool 
B) decrease; taxes would have to be collected to build the pool 
C) increase; the total social benefit of the pool is greater than the total cost of the pool 
D) increase; the cost of building the pool can be passed to users from other towns

The most appropriate level of government to provide public goods is:

The negative effect of a tax on the economic surplus of participants in a market should:

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, then the marginal benefit of the 30ᵗʰ unit is:

If the government taxes a good that generates a negative externality, then the government:

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ________ acres.

Josh pays $6,000 in taxes and earns $60,000. Maggie pays $4,000 in taxes. If the tax system is progressive, then Maggie earns:

Pork barrel programs are government programs that:

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then:

Suppose Scott's demand for a public good is P = 7 - 0.3Q and Mike's demand is P = 10 - 1.5Q. The equation for the total demand for the public good is:

The demand curve for a public good is constructed by:

If all taxpayers pay the same percentage of their income in taxes, the tax is termed a(n):

One disadvantage of using the government to provide pure public goods is that everyone receives of the public good and has for the public good.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Exam 14: Public Goods and Tax Policy

The most appropriate level of government to provide public goods is:

The negative effect of a tax on the economic surplus of participants in a market should:

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, then the marginal benefit of the 30ᵗʰ unit is:

If the government taxes a good that generates a negative externality, then the government:

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $8 per acre. The optimal park size would be ________ acres.

Josh pays $6,000 in taxes and earns $60,000. Maggie pays $4,000 in taxes. If the tax system is progressive, then Maggie earns:

Pork barrel programs are government programs that:

Citizens of Tinytown are considering building a new park. If each voter in Tinytown has a reservation price that is less than the total cost of the park, then:

Suppose Scott's demand for a public good is P = 7 - 0.3Q and Mike's demand is P = 10 - 1.5Q. The equation for the total demand for the public good is:

The demand curve for a public good is constructed by:

If all taxpayers pay the same percentage of their income in taxes, the tax is termed a(n):

One disadvantage of using the government to provide pure public goods is that everyone receives ________ of the public good and has ________ for the public good.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

One disadvantage of using the government to provide pure public goods is that everyone receives of the public good and has for the public good.