Question 1

When a paper producer pollutes the air, economists argue that there is

Accepted Answer

A)  efficiency, if production is at its maximum level. 
B)  a positive externality. 
C)  an external cost. 
D)  a cost paid solely by the firm. 
A)  efficiency, if production is at its maximum level. 
B)  a positive externality. 
C)  an external cost. 
D)  a cost paid solely by the firm.

Question 2

A firm that has a great deal of control over the price of a good is said

Accepted Answer

A)  to function in a black market. 
B)  to create a tax incidence. 
C)  to have monopoly power. 
D)  to be in an antitrust position. 
A)  to function in a black market. 
B)  to create a tax incidence. 
C)  to have monopoly power. 
D)  to be in an antitrust position.

Question 3

Which of the following is an example of a positive externality?

Accepted Answer

A)  something obtainable at a zero price 
B)  a lower crime rate for a community in which residents receive more education 
C)  increased purchases of landscaping services by a homeowner that boost a neighbor's property value 
D)  a discount for consumers buying in large quantity 
A)  something obtainable at a zero price 
B)  a lower crime rate for a community in which residents receive more education 
C)  increased purchases of landscaping services by a homeowner that boost a neighbor's property value 
D)  a discount for consumers buying in large quantity

Question 4

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 5

An effluent fee

Accepted Answer

A)  is a reward to companies using production methods that create positive externalities. 
B)  is also called a pollution subsidy. 
C)  gives a firm the right to pollute if it pays a tax on what it discharges. 
D)  is intended to influence the market by increasing supply and decreasing price. 
A)  is a reward to companies using production methods that create positive externalities. 
B)  is also called a pollution subsidy. 
C)  gives a firm the right to pollute if it pays a tax on what it discharges. 
D)  is intended to influence the market by increasing supply and decreasing price.

Question 6

Medicare subsides will cause people to

Accepted Answer

A)  consume less medical services than in the absence of the subsidies. 
B)  consume more medical services than in the absence of the subsidies. 
C)  consume the same amount medical services as they would if there were no subsidies. 
D)  be sicker because of inferior care. 
A)  consume less medical services than in the absence of the subsidies. 
B)  consume more medical services than in the absence of the subsidies. 
C)  consume the same amount medical services as they would if there were no subsidies. 
D)  be sicker because of inferior care.

Question 7

Market failures occur when

Accepted Answer

A)  externalities exist. 
B)  wages increase. 
C)  there is an increase in demand. 
D)  there is a change in quantity demanded. 
A)  externalities exist. 
B)  wages increase. 
C)  there is an increase in demand. 
D)  there is a change in quantity demanded.

Question 8

When positive externalities exist, the private market equilibrium represents a

Accepted Answer

A)  market price which is too low and a market quantity which is too low. 
B)  market price which is too low and a market quantity which is too high. 
C)  market price which is too high and a market quantity which is too low. 
D)  market price which is too high and a market quantity which is too high. 
A)  market price which is too low and a market quantity which is too low. 
B)  market price which is too low and a market quantity which is too high. 
C)  market price which is too high and a market quantity which is too low. 
D)  market price which is too high and a market quantity which is too high.

Question 9

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 10

Public goods

Accepted Answer

A)  are overproduced by unrestrained markets. 
B)  are simply private goods that the government provides. 
C)  cannot be consumed by more than one person without the degradation of the value of the good. 
D)  can be consumed by more than one person without degradation of the value of the good. 
A)  are overproduced by unrestrained markets. 
B)  are simply private goods that the government provides. 
C)  cannot be consumed by more than one person without the degradation of the value of the good. 
D)  can be consumed by more than one person without degradation of the value of the good.

Question 11

All of the following are ways that the government can correct for positive externalities EXCEPT

Accepted Answer

A)  by subsidizing the consumption of the good. 
B)  producing the good itself. 
C)  by regulation. 
D)  by assessing an effluent fee. 
A)  by subsidizing the consumption of the good. 
B)  producing the good itself. 
C)  by regulation. 
D)  by assessing an effluent fee.

Question 12

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 13

-Refer to the above figure. An external benefit exists. The amount of that benefit is represented by

Accepted Answer

A)    . 
B)  the vertical distance between D1 and D2. 
C)  the distance between G and F. 
D)  P3. 
A)    . 
B)  the vertical distance between D1 and D2. 
C)  the distance between G and F. 
D)  P3.

Question 14

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 15

What is the purpose of antitrust legislation?

Accepted Answer

Antitrust legislation makes illegal cert

Question 16

A government action that can help correct positive externalities is

Accepted Answer

A)  a tax on producers of the good that provides external benefits. 
B)  a subsidy to consumers of the good that provides external benefits. 
C)  an effluent fee charged to producers of the good that provides external benefits. 
D)  regulations aimed at reduced production by sellers of the good that provides external benefits. 
A)  a tax on producers of the good that provides external benefits. 
B)  a subsidy to consumers of the good that provides external benefits. 
C)  an effluent fee charged to producers of the good that provides external benefits. 
D)  regulations aimed at reduced production by sellers of the good that provides external benefits.

Question 17

A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

Accepted Answer

A)  competition. 
B)  excessive competition. 
C)  destructive competition. 
D)  a market failure. 
A)  competition. 
B)  excessive competition. 
C)  destructive competition. 
D)  a market failure.

Question 18

Which of the following will LEAST likely generate positive external benefits to society?

Accepted Answer

A)  Education 
B)  The use of cell phone services 
C)  Health care 
D)  Requiring drivers to undergo periodic eye examinations 
A)  Education 
B)  The use of cell phone services 
C)  Health care 
D)  Requiring drivers to undergo periodic eye examinations

Question 19

To correct for positive externalities the government

Accepted Answer

A)  should allow the price system to do the correction. 
B)  can impose a tax. 
C)  can give a subsidy. 
D)  should create a public good. 
A)  should allow the price system to do the correction. 
B)  can impose a tax. 
C)  can give a subsidy. 
D)  should create a public good.

Question 20

In the United States, the idea that the federal government should undertake actions to stabilize business activity

Accepted Answer

A)  was established in the Declaration of Independence. 
B)  is a relatively new idea that developed in the years during and after the Great Depression. 
C)  has been around since the early 1700s. 
D)  developed during World War I. 
A)  was established in the Declaration of Independence. 
B)  is a relatively new idea that developed in the years during and after the Great Depression. 
C)  has been around since the early 1700s. 
D)  developed during World War I.

Exam 5: Public Spending and Public Choice

When a paper producer pollutes the air, economists argue that there is

A firm that has a great deal of control over the price of a good is said

Which of the following is an example of a positive externality?

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

An effluent fee

Medicare subsides will cause people to

Market failures occur when

When positive externalities exist, the private market equilibrium represents a

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

Public goods

All of the following are ways that the government can correct for positive externalities EXCEPT

An effluent fee is a

-Refer to the above figure. An external benefit exists. The amount of that benefit is represented by

Which of the following might be considered a positive externality?

What is the purpose of antitrust legislation?

A government action that can help correct positive externalities is

A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

Which of the following will LEAST likely generate positive external benefits to society?

To correct for positive externalities the government

In the United States, the idea that the federal government should undertake actions to stabilize business activity

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

Measuring the Economys Performance

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

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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