Question 1

When comparing market and public sector decision making, which statement is NOT true?

Accepted Answer

A)  Self-interest is the motivating force in each decision making arena. 
B)  In both decision making sectors, majority rule is how things are done. 
C)  In both decision making sectors, there are scarcity constraints. 
D)  Collective (political) outcomes and economic outcomes may differ. 
A)  Self-interest is the motivating force in each decision making arena. 
B)  In both decision making sectors, majority rule is how things are done. 
C)  In both decision making sectors, there are scarcity constraints. 
D)  Collective (political) outcomes and economic outcomes may differ.

Question 2

Graphically, the presence of an external cost that is ignored by producers can be shown as

Accepted Answer

A)  a market supply curve to the left of the market supply curve for where the producers have to pay for the external cost. 
B)  a market supply curve to the right of the market supply curve for which the producers have to pay for the external cost. 
C)  a market supply curve the same as the market supply curve for which the producers have to pay for the external cost. 
D)  the absence of a market supply curve. 
A)  a market supply curve to the left of the market supply curve for where the producers have to pay for the external cost. 
B)  a market supply curve to the right of the market supply curve for which the producers have to pay for the external cost. 
C)  a market supply curve the same as the market supply curve for which the producers have to pay for the external cost. 
D)  the absence of a market supply curve.

Question 3

One of the most important characteristics of the price system is that

Accepted Answer

A)  consumers are the ones who ultimately decide what is produced. 
B)  politicians are the ones who ultimately decide what is produced. 
C)  competition among sellers is reduced. 
D)  all exchanges are regulated by the government. 
A)  consumers are the ones who ultimately decide what is produced. 
B)  politicians are the ones who ultimately decide what is produced. 
C)  competition among sellers is reduced. 
D)  all exchanges are regulated by the government.

Question 4

Private goods are those goods

Accepted Answer

A)  that violate the principle of rival consumption. 
B)  for which no public market exists. 
C)  that can only be consumed by one individual at a time. 
D)  to which the non-exclusion principle applies. 
A)  that violate the principle of rival consumption. 
B)  for which no public market exists. 
C)  that can only be consumed by one individual at a time. 
D)  to which the non-exclusion principle applies.

Question 5

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 6

Markets tend to overallocate 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 7

In the absence of government,

Accepted Answer

A)  public goods are likely to be overprovided. 
B)  market failure is less likely to occur. 
C)  public goods are likely to be underprovided. 
D)  the free-rider problem is more likely to occur. 
A)  public goods are likely to be overprovided. 
B)  market failure is less likely to occur. 
C)  public goods are likely to be underprovided. 
D)  the free-rider problem is more likely to occur.

Question 8

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 9

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

Accepted Answer

A)  the free-rider problem. 
B)  the negative externality principle. 
C)  the principle of rival consumption. 
D)  the principle of anti-trust. 
A)  the free-rider problem. 
B)  the negative externality principle. 
C)  the principle of rival consumption. 
D)  the principle of anti-trust.

Question 10

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

Accepted Answer

A)  state lotteries 
B)  telephone service 
C)  cable TV programming 
D)  national defense 
A)  state lotteries 
B)  telephone service 
C)  cable TV programming 
D)  national defense

Question 11

The market and public sector are similar in that

Accepted Answer

A)  there is competition amongst the participants in both sectors. 
B)  the resources used in both sectors are scarce. 
C)  the participants in both sectors react to incentives. 
D)  All of the above are true. 
A)  there is competition amongst the participants in both sectors. 
B)  the resources used in both sectors are scarce. 
C)  the participants in both sectors react to incentives. 
D)  All of the above are true.

Question 12

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?

Accepted Answer

A)  The incentive system for individuals to perform efficiently are vastly different. 
B)  The workers themselves are really quite different types of people. 
C)  In both sectors individuals will try to maximize their own individual gains over the gains of others. 
D)  Costs and resources are vastly different in each sector. 
A)  The incentive system for individuals to perform efficiently are vastly different. 
B)  The workers themselves are really quite different types of people. 
C)  In both sectors individuals will try to maximize their own individual gains over the gains of others. 
D)  Costs and resources are vastly different in each sector.

Question 13

An important assumption in the theory of public choice is that

Accepted Answer

A)  individuals will act within the political process to maximize their individual well-being. 
B)  individuals will act within the political process to maximize their collective well-being. 
C)  individuals will only operate outside the political process when their well-being is involved. 
D)  scarcity does not exist in the government sector. 
A)  individuals will act within the political process to maximize their individual well-being. 
B)  individuals will act within the political process to maximize their collective well-being. 
C)  individuals will only operate outside the political process when their well-being is involved. 
D)  scarcity does not exist in the government sector.

Question 14

When costs spill over to third parties, there is a(n)

Accepted Answer

A)  cost overrun 
B)  excessive competition. 
C)  negative externality. 
D)  government subsidy. 
A)  cost overrun 
B)  excessive competition. 
C)  negative externality. 
D)  government subsidy.

Question 15

Providing public goods is a(n)

Accepted Answer

A)  economic function of government. 
B)  political function of government. 
C)  economic and political function of government. 
D)  price system function. 
A)  economic function of government. 
B)  political function of government. 
C)  economic and political function of government. 
D)  price system function.

Question 16

Market failures

Accepted Answer

A)  are usually caused by government interference in the economy. 
B)  prevent the price system from attaining economic efficiency. 
C)  encourage people to purchase more of a good than they really want. 
D)  encourage businesses to produce more of a good than they really want to. 
A)  are usually caused by government interference in the economy. 
B)  prevent the price system from attaining economic efficiency. 
C)  encourage people to purchase more of a good than they really want. 
D)  encourage businesses to produce more of a good than they really want to.

Question 17

Which of the following statements about public education is TRUE?

Accepted Answer

A)  Over the last 40 years, there has been an increase in spending for public education, while there has not been a significant increase in performance. 
B)  Over the last 40 years, there has been a decrease in public spending for public education, while there has not been a significant increase in performance. 
C)  Most of the increases in public spending on public education have gone into programs that have increased student learning. 
D)  Over the last 40 years there has been no decline in any of the measures of student performance in public education. 
A)  Over the last 40 years, there has been an increase in spending for public education, while there has not been a significant increase in performance. 
B)  Over the last 40 years, there has been a decrease in public spending for public education, while there has not been a significant increase in performance. 
C)  Most of the increases in public spending on public education have gone into programs that have increased student learning. 
D)  Over the last 40 years there has been no decline in any of the measures of student performance in public education.

Question 18

A government subsidy is typically used

Accepted Answer

A)  to correct a negative externality. 
B)  to provide a government-inhibited good. 
C)  to reduce inflation. 
D)  to correct a positive externality. 
A)  to correct a negative externality. 
B)  to provide a government-inhibited good. 
C)  to reduce inflation. 
D)  to correct a positive externality.

Question 19

Scarcity

Accepted Answer

A)  affects both market and public sector decision making. 
B)  affects market, but not public sector decision making. 
C)  affects public sector, but not market decision making. 
D)  is really not an issue in such a wealthy nation as the United States. 
A)  affects both market and public sector decision making. 
B)  affects market, but not public sector decision making. 
C)  affects public sector, but not market decision making. 
D)  is really not an issue in such a wealthy nation as the United States.

Question 20

Which of the following is NOT an example of a transfer payment?

Accepted Answer

A)  unemployment compensation 
B)  food stamps 
C)  government salaries 
D)  Social Security benefits 
A)  unemployment compensation 
B)  food stamps 
C)  government salaries 
D)  Social Security benefits

Exam 5: Public Spending and Public Choice

When comparing market and public sector decision making, which statement is NOT true?

Graphically, the presence of an external cost that is ignored by producers can be shown as

One of the most important characteristics of the price system is that

Private goods are those goods

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

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

In the absence of government,

A transfer payment is a payment

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

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

The market and public sector are similar in that

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?

An important assumption in the theory of public choice is that

When costs spill over to third parties, there is a(n)

Providing public goods is a(n)

Market failures

Which of the following statements about public education is TRUE?

A government subsidy is typically used

Scarcity

Which of the following is NOT an example of a transfer payment?

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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