Question 1

As a share of total national income, government spending generally has

Accepted Answer

A)  been constant over the last fifty years. 
B)  increased over the last fifty years. 
C)  decreased over the last fifty years. 
D)  increased until ten years ago, and then decreased steadily. 
A)  been constant over the last fifty years. 
B)  increased over the last fifty years. 
C)  decreased over the last fifty years. 
D)  increased until ten years ago, and then decreased steadily.

Question 2

A friend of yours receives a government voucher for an apartment in a public housing project. This apartment represents

Accepted Answer

A)  a government-sponsored good. 
B)  the free-rider problem. 
C)  a public good. 
D)  the drop-in-the-bucket problem. 
A)  a government-sponsored good. 
B)  the free-rider problem. 
C)  a public good. 
D)  the drop-in-the-bucket problem.

Question 3

An example of a transfer payment is

Accepted Answer

A)  the President's salary. 
B)  unemployment insurance benefits. 
C)  a payment to a defense contractor. 
D)  court costs paid by the defendants in a law suit. 
A)  the President's salary. 
B)  unemployment insurance benefits. 
C)  a payment to a defense contractor. 
D)  court costs paid by the defendants in a law suit.

Question 4

A characteristic of a public good is

Accepted Answer

A)  rival consumption. 
B)  the exclusion principle. 
C)  the free-rider problem. 
D)  clear property rights. 
A)  rival consumption. 
B)  the exclusion principle. 
C)  the free-rider problem. 
D)  clear property rights.

Question 5

Which of the following checks issued by the government represents a transfer payment?

Accepted Answer

A)  The federal government pays a defense contractor for development of a missile system. 
B)  The federal government pays a retiree her Social Security benefits. 
C)  The state of Oregon pays a construction firm for its work in repairing a state highway. 
D)  The state of Illinois pays groundskeepers at the state capitol building their weekly wages. 
A)  The federal government pays a defense contractor for development of a missile system. 
B)  The federal government pays a retiree her Social Security benefits. 
C)  The state of Oregon pays a construction firm for its work in repairing a state highway. 
D)  The state of Illinois pays groundskeepers at the state capitol building their weekly wages.

Question 6

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Accepted Answer

A)  the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B)  the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C)  the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D)  the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price. 
A)  the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B)  the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C)  the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D)  the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price.

Question 7

Briefly explain why government subsidies are a reason for the declining student performance in public education.

Accepted Answer

This is due to the incentive problems of

Question 8

Which of the following is a benefit of the price system?

Accepted Answer

A)  The existence of positive externalities. 
B)  The production of public goods. 
C)  Consumers have what they want since politicians and business managers decide what is to be produced. 
D)  The freedom of consumers to decide what they want to purchase. 
A)  The existence of positive externalities. 
B)  The production of public goods. 
C)  Consumers have what they want since politicians and business managers decide what is to be produced. 
D)  The freedom of consumers to decide what they want to purchase.

Question 9

When an external cost exists in the production of a good, firms tend to

Accepted Answer

A)  under-produce the good since society pays these costs. 
B)  over-produce the good. 
C)  keep production constant throughout the year. 
D)  under-allocate resources to the production of the good. 
A)  under-produce the good since society pays these costs. 
B)  over-produce the good. 
C)  keep production constant throughout the year. 
D)  under-allocate resources to the production of the good.

Question 10

Public elementary and high school education in the United States is provided

Accepted Answer

A)  as a free good. 
B)  as a subsidized good. 
C)  at the market clearing price. 
D)  in an amount less than the equilibrium quantity. 
A)  as a free good. 
B)  as a subsidized good. 
C)  at the market clearing price. 
D)  in an amount less than the equilibrium quantity.

Question 11

Recipients of Medicare tend to demand a greater quantity of low-value, high-cost services because

Accepted Answer

A)  the services are readily available. 
B)  recipients are coerced into demanding such services. 
C)  the government mandates that they demand such services. 
D)  the services are heavily subsidized. 
A)  the services are readily available. 
B)  recipients are coerced into demanding such services. 
C)  the government mandates that they demand such services. 
D)  the services are heavily subsidized.

Question 12

If a government determines that the provision of services by museums should be encouraged, then this means that the government has judged museum displays to be a(n)

Accepted Answer

A)  government-sponsored good. 
B)  exclusive good. 
C)  government-inhibited good. 
D)  public good. 
A)  government-sponsored good. 
B)  exclusive good. 
C)  government-inhibited good. 
D)  public good.

Question 13

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

Accepted Answer

A)  when the good being produced or consumed is not scarce 
B)  when the good being produced or consumed generates a negative externality 
C)  when the good being produced or consumed generates a positive externality 
D)  when the equilibrium price of the good is one that consumers don't like 
A)  when the good being produced or consumed is not scarce 
B)  when the good being produced or consumed generates a negative externality 
C)  when the good being produced or consumed generates a positive externality 
D)  when the equilibrium price of the good is one that consumers don't like

Question 14

The purpose of an effluent fee is to

Accepted Answer

A)  reduce the amount produced of a good and to raise the market price. 
B)  correct for pollution while keeping the price of the good the same as before the correction. 
C)  reward people producing externalities. 
D)  encourage producers to keep the quantity produced the same while lowering the price. 
A)  reduce the amount produced of a good and to raise the market price. 
B)  correct for pollution while keeping the price of the good the same as before the correction. 
C)  reward people producing externalities. 
D)  encourage producers to keep the quantity produced the same while lowering the price.

Question 15

Consumers are sovereign when

Accepted Answer

A)  prices are decided by sellers. 
B)  they control the government. 
C)  they can prevent market failure. 
D)  they have the freedom to decide what they wish to purchase. 
A)  prices are decided by sellers. 
B)  they control the government. 
C)  they can prevent market failure. 
D)  they have the freedom to decide what they wish to purchase.

Question 16

One way of addressing the associated market failure that generates both private costs and external costs is for this activity to be

Accepted Answer

A)  left alone. 
B)  taxed. 
C)  subsidized. 
D)  banned. 
A)  left alone. 
B)  taxed. 
C)  subsidized. 
D)  banned.

Question 17

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. An external benefit exists. This will lead to a(n)

Accepted Answer

A)  underproduction equal to   minus   . 
B)  overproduction equal to   minus   . 
C)  underproduction equal to   minus   . 
D)  overproduction equal to   minus   . 
A)  underproduction equal to   minus   . 
B)  overproduction equal to   minus   . 
C)  underproduction equal to   minus   . 
D)  overproduction equal to   minus   .

Question 18

Public goods are desired because

Accepted Answer

A)  people want and value them but the private sector will not make them available. 
B)  we want the government to spend our tax dollars. 
C)  they came in small units. 
D)  they make supply equal to demand for private goods. 
A)  people want and value them but the private sector will not make them available. 
B)  we want the government to spend our tax dollars. 
C)  they came in small units. 
D)  they make supply equal to demand for private goods.

Question 19

Market failure means that

Accepted Answer

A)  the strike organized by unionized employees fails to achieve its goal. 
B)  too many outdated products are offered for sale in the local supermarket. 
C)  there is overallocation or underallocation of resources to certain economic activity. 
D)  an unexpectedly harsh winter shuts down a factory. 
A)  the strike organized by unionized employees fails to achieve its goal. 
B)  too many outdated products are offered for sale in the local supermarket. 
C)  there is overallocation or underallocation of resources to certain economic activity. 
D)  an unexpectedly harsh winter shuts down a factory.

Question 20

Over the past 40 years, there has been an increase in spending on public education without a significant increase in student performance. One explanation given by economists on why student performance has not improved is that

Accepted Answer

A)  not enough funds have been spent on public education. 
B)  schools are providing high-priced services that are not valued by parents. 
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D)  too much competition for educational services. 
A)  not enough funds have been spent on public education. 
B)  schools are providing high-priced services that are not valued by parents. 
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D)  too much competition for educational services.

Exam 5: Public Spending and Public Choice

As a share of total national income, government spending generally has

A friend of yours receives a government voucher for an apartment in a public housing project. This apartment represents

An example of a transfer payment is

A characteristic of a public good is

Which of the following checks issued by the government represents a transfer payment?

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Briefly explain why government subsidies are a reason for the declining student performance in public education.

Which of the following is a benefit of the price system?

When an external cost exists in the production of a good, firms tend to

Public elementary and high school education in the United States is provided

Recipients of Medicare tend to demand a greater quantity of low-value, high-cost services because

If a government determines that the provision of services by museums should be encouraged, then this means that the government has judged museum displays to be a(n)

When does a subsidy that benefits consumers result in a more efficient allocation of a resource?

The purpose of an effluent fee is to

Consumers are sovereign when

One way of addressing the associated market failure that generates both private costs and external costs is for this activity to be

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. An external benefit exists. This will lead to a(n)

Public goods are desired because

Market failure means that

Over the past 40 years, there has been an increase in spending on public education without a significant increase in student performance. One explanation given by economists on why student performance has not improved is 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

Filters

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. An external benefit exists. This will lead to a(n)