Question 1

A negative externality such as pollution can be corrected by

Accepted Answer

A)  a subsidy to producers. 
B)  a tax on producers. 
C)  a subsidy to consumers. 
D)  a stimulus to production. 
A)  a subsidy to producers. 
B)  a tax on producers. 
C)  a subsidy to consumers. 
D)  a stimulus to production.

Question 2

Whether an externality is positive or negative, it is always

Accepted Answer

A)  evaluated by the Supreme Court of the United States. 
B)  evaluated by the government. 
C)  evaluated by the impact on the third party. 
D)  judged by the profitability of the firm producing the product. 
A)  evaluated by the Supreme Court of the United States. 
B)  evaluated by the government. 
C)  evaluated by the impact on the third party. 
D)  judged by the profitability of the firm producing the product.

Question 3

Market failure occurs when

Accepted Answer

A)  a good is too expensive for the market to provide. 
B)  an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C)  one good is superior to another and drives it out of the market. 
D)  the stock market experiences a very large loss. 
A)  a good is too expensive for the market to provide. 
B)  an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C)  one good is superior to another and drives it out of the market. 
D)  the stock market experiences a very large loss.

Question 4

A tax is sometimes used by government to correct the problems associated with

Accepted Answer

A)  negative externalities. 
B)  positive externalities. 
C)  internal benefits. 
D)  external benefits. 
A)  negative externalities. 
B)  positive externalities. 
C)  internal benefits. 
D)  external benefits.

Question 5

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

Accepted Answer

A)  resources are under-allocated to the industry. 
B)  the equilibrium market price of the product includes the external costs borne by society. 
C)  resources are over-allocated to the industry. 
D)  at the market price, quantity demanded is less than quantity supplied. 
A)  resources are under-allocated to the industry. 
B)  the equilibrium market price of the product includes the external costs borne by society. 
C)  resources are over-allocated to the industry. 
D)  at the market price, quantity demanded is less than quantity supplied.

Question 6

Which of the following could best be categorized as a public good?

Accepted Answer

A)  an apartment in a public housing project 
B)  a pumpkin pie 
C)  public fireworks 
D)  a race track 
A)  an apartment in a public housing project 
B)  a pumpkin pie 
C)  public fireworks 
D)  a race track

Question 7

The major economic effect of Medicare subsidies is

Accepted Answer

A)  that the number of physicians has decreased since compensation is low. 
B)  to increase the price of medical services and reduce the quantity demanded. 
C)  to increase the price of medical services and increase the quantity demanded. 
D)  to lower the price of medical services and reduce the quantity demanded. 
A)  that the number of physicians has decreased since compensation is low. 
B)  to increase the price of medical services and reduce the quantity demanded. 
C)  to increase the price of medical services and increase the quantity demanded. 
D)  to lower the price of medical services and reduce the quantity demanded.

Question 8

According to the textbook, what are the two key political functions of government in a market economy?

Accepted Answer

The two functions of governmen

Question 9

How have some patients been harmed by Medicare reimbursement caps?

Accepted Answer

A)  They have been discharged from the hospital too soon, so that the hospital can cut costs. 
B)  They have been kept in the hospital too long, so that the hospital can get a higher reimbursement amount. 
C)  They have had to undergo unnecessary procedures, so that the hospital can get a higher reimbursement amount. 
D)  They have had to wait too long for essential procedures. 
A)  They have been discharged from the hospital too soon, so that the hospital can cut costs. 
B)  They have been kept in the hospital too long, so that the hospital can get a higher reimbursement amount. 
C)  They have had to undergo unnecessary procedures, so that the hospital can get a higher reimbursement amount. 
D)  They have had to wait too long for essential procedures.

Question 10

The theory of public choice suggests that

Accepted Answer

A)  government agencies tend to be inefficient because the people running them do not understand the concept of opportunity cost. 
B)  government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient. 
C)  the goods provided by government, whether public or private goods, are not scarce. 
D)  you can lower your tax bill if you are careful not to consume too many government resources, regardless of what your neighbors do. 
A)  government agencies tend to be inefficient because the people running them do not understand the concept of opportunity cost. 
B)  government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient. 
C)  the goods provided by government, whether public or private goods, are not scarce. 
D)  you can lower your tax bill if you are careful not to consume too many government resources, regardless of what your neighbors do.

Question 11

An economic activity in which benefits or costs affect third parties is called

Accepted Answer

A)  a public good. 
B)  a third-party good. 
C)  the exclusion principle. 
D)  an externality. 
A)  a public good. 
B)  a third-party good. 
C)  the exclusion principle. 
D)  an externality.

Question 12

Which of the following statements is TRUE?

Accepted Answer

A)  Government spending as a percent of total national income has continuously decreased since the 1950s. 
B)  Transfer payments are money payments made by the government for which no goods or services are currently received. 
C)  Education is the largest category of federal government expenditures. 
D)  Transfers in kind include Welfare, Social Security, and unemployment insurance benefits. 
A)  Government spending as a percent of total national income has continuously decreased since the 1950s. 
B)  Transfer payments are money payments made by the government for which no goods or services are currently received. 
C)  Education is the largest category of federal government expenditures. 
D)  Transfers in kind include Welfare, Social Security, and unemployment insurance benefits.

Question 13

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

Accepted Answer

A)  a negative externality. 
B)  a private good. 
C)  the need for antitrust legislation. 
D)  a free rider. 
A)  a negative externality. 
B)  a private good. 
C)  the need for antitrust legislation. 
D)  a free rider.

Question 14

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 15

Orchards provide services to beekeepers because the bees use the pollen to make honey. This is an example of

Accepted Answer

A)  a positive externality, and too many orchards exist in society. 
B)  a positive externality, and too few orchards exist in society. 
C)  a negative externality, and too many orchards exist in society. 
D)  a negative externality, and too few orchards exist in society. 
A)  a positive externality, and too many orchards exist in society. 
B)  a positive externality, and too few orchards exist in society. 
C)  a negative externality, and too many orchards exist in society. 
D)  a negative externality, and too few orchards exist in society.

Question 16

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Accepted Answer

A)  a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account. 
B)  a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account. 
C)  a market demand curve the same as the market demand curve for which the consumers take the external benefit into account. 
D)  the absence of a market demand curve. 
A)  a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account. 
B)  a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account. 
C)  a market demand curve the same as the market demand curve for which the consumers take the external benefit into account. 
D)  the absence of a market demand curve.

Question 17

Public goods face the

Accepted Answer

A)  principle of rival consumption. 
B)  free-rider problem. 
C)  law of overproduction. 
D)  exclusion principle. 
A)  principle of rival consumption. 
B)  free-rider problem. 
C)  law of overproduction. 
D)  exclusion principle.

Question 18

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

Accepted Answer

A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  an example of a public good. 
D)  an example of market power. 
A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  an example of a public good. 
D)  an example of market power.

Question 19

The political functions of government differ from the economic functions of government in that

Accepted Answer

A)  the political functions relate to income distribution while the economic functions relate to the way exchange is carried out. 
B)  the political functions are performed at the federal government while the economic functions are at the state and local government levels. 
C)  the political functions involve elections and the court systems while the economic functions involve taxation and transfers. 
D)  the President deals with the economic functions while Congress deals with the political functions. 
A)  the political functions relate to income distribution while the economic functions relate to the way exchange is carried out. 
B)  the political functions are performed at the federal government while the economic functions are at the state and local government levels. 
C)  the political functions involve elections and the court systems while the economic functions involve taxation and transfers. 
D)  the President deals with the economic functions while Congress deals with the political functions.

Question 20

A shift from SS1U1B11S1U1B0 to SS1U1B12S1U1B0 reflects the change that happens when a negative externality is taken into account. A shift from DS1U1B11S1U1B0 to DS1U1B12S1U1B0 reflects the change that happens when a positive externality is taken into account.
-Refer to the above figures. A negative externality exists that has not been corrected. Price and quantity will be

Accepted Answer

A)    and   . 
B)    and   . 
C)    and   . 
D)    and   . 
A)    and   . 
B)    and   . 
C)    and   . 
D)    and   .

Exam 5: Public Spending and Public Choice

A negative externality such as pollution can be corrected by

Whether an externality is positive or negative, it is always

Market failure occurs when

A tax is sometimes used by government to correct the problems associated with

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

Which of the following could best be categorized as a public good?

The major economic effect of Medicare subsidies is

According to the textbook, what are the two key political functions of government in a market economy?

How have some patients been harmed by Medicare reimbursement caps?

The theory of public choice suggests that

An economic activity in which benefits or costs affect third parties is called

Which of the following statements is TRUE?

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

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

Orchards provide services to beekeepers because the bees use the pollen to make honey. This is an example of

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Public goods face the

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

The political functions of government differ from the economic functions of government in that

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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