Question 1

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

Accepted Answer

A)  less than the price that producers receive for providing care. 
B)  greater than the price that producers receive for providing care. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero. 
A)  less than the price that producers receive for providing care. 
B)  greater than the price that producers receive for providing care. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero.

Question 2

An example of a public good is

Accepted Answer

A)  software produced by Microsoft. 
B)  housing subsidies. 
C)  the car I own. 
D)  the fire department. 
A)  software produced by Microsoft. 
B)  housing subsidies. 
C)  the car I own. 
D)  the fire department.

Question 3

A political function of government is to

Accepted Answer

A)  encourage the consumption of government-sponsored goods. 
B)  provide public goods. 
C)  correct for externalities. 
D)  encourage the workings of the price system. 
A)  encourage the consumption of government-sponsored goods. 
B)  provide public goods. 
C)  correct for externalities. 
D)  encourage the workings of the price system.

Question 4

An example of a negative externality created in the market system would be

Accepted Answer

A)  poverty. 
B)  unemployment. 
C)  an increased number of bird flu patients. 
D)  water pollution. 
A)  poverty. 
B)  unemployment. 
C)  an increased number of bird flu patients. 
D)  water pollution.

Question 5

The government corrects for externalities in all of the following ways EXCEPT

Accepted Answer

A)  taxes. 
B)  regulation. 
C)  lobbying. 
D)  subsidies. 
A)  taxes. 
B)  regulation. 
C)  lobbying. 
D)  subsidies.

Question 6

What would happen in a free market system when production of a good generates negative externalities?

Accepted Answer

A)  There is a shortage of the good. 
B)  There is a surplus of the good. 
C)  The equilibrium quantity of the good is less than the efficient amount. 
D)  The equilibrium quantity of the good is more than the efficient amount. 
A)  There is a shortage of the good. 
B)  There is a surplus of the good. 
C)  The equilibrium quantity of the good is less than the efficient amount. 
D)  The equilibrium quantity of the good is more than the efficient amount.

Question 7

List and explain the four key assumptions in the theory of public choice.

Accepted Answer

The key assumptions in the theory of pub

Question 8

The price system will allocate resources efficiently except when

Accepted Answer

A)  consumers decide they want more of a good. 
B)  no externalities exist. 
C)  farmers decide to produce more corn. 
D)  market failures exist. 
A)  consumers decide they want more of a good. 
B)  no externalities exist. 
C)  farmers decide to produce more corn. 
D)  market failures exist.

Question 9

All of the following are characteristics of public goods EXCEPT

Accepted Answer

A)  Public goods can be used by more people at no additional cost. 
B)  The good can be consumed by everyone at the same time without reducing what is available for anyone else. 
C)  The exclusion principle. 
D)  The goods are perfectly divisible. 
A)  Public goods can be used by more people at no additional cost. 
B)  The good can be consumed by everyone at the same time without reducing what is available for anyone else. 
C)  The exclusion principle. 
D)  The goods are perfectly divisible.

Question 10

An external cost, such as the cost generated by pollution, is

Accepted Answer

A)  a cost paid by consumers of the product. 
B)  a cost paid by producers of the product. 
C)  a cost paid by a third party or by society at large. 
D)  not a true opportunity cost of production. 
A)  a cost paid by consumers of the product. 
B)  a cost paid by producers of the product. 
C)  a cost paid by a third party or by society at large. 
D)  not a true opportunity cost of production.

Question 11

What is an externality? How do positive and negative externalities differ in their effects? How can government action correct positive and negative externalities?

Accepted Answer

An externality is a cost or benefit of a

Question 12

Market failure occurs when

Accepted Answer

A)  the price system fails to generate an efficient allocation of resources. 
B)  the price system fails to generate an equal distribution of income. 
C)  the price system fails to generate an equal distribution of wealth. 
D)  the price system allows consumers to make their own decisions. 
A)  the price system fails to generate an efficient allocation of resources. 
B)  the price system fails to generate an equal distribution of income. 
C)  the price system fails to generate an equal distribution of wealth. 
D)  the price system allows consumers to make their own decisions.

Question 13

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)  Inoculation against disease 
B)  Pollution 
C)  Playing a boom box loudly in a crowded park 
D)  Rush hour traffic 
A)  Inoculation against disease 
B)  Pollution 
C)  Playing a boom box loudly in a crowded park 
D)  Rush hour traffic

Question 14

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

Accepted Answer

A)  negative externalities. 
B)  positive externalities. 
C)  public goods. 
D)  monopolies. 
A)  negative externalities. 
B)  positive externalities. 
C)  public goods. 
D)  monopolies.

Question 15

What happens in public schools when government funds subsidize education?

Accepted Answer

A)  There is a shortage of schools. 
B)  The quality of education rises. 
C)  The cost of providing the education is less than what the student pays. 
D)  The cost of providing the education is more than what the students pays. 
A)  There is a shortage of schools. 
B)  The quality of education rises. 
C)  The cost of providing the education is less than what the student pays. 
D)  The cost of providing the education is more than what the students pays.

Question 16

Medicare is an example of a third-party payment for medical services that

Accepted Answer

A)  causes providers to supply less of medical services than they would without the payment. 
B)  causes buyers to consume more of medical services than they would without the payment. 
C)  does not cause any change in the equilibrium position for medical services which existed without the subsidy. 
D)  causes the price of medical services to rise for the consumer once the payment is provided. 
A)  causes providers to supply less of medical services than they would without the payment. 
B)  causes buyers to consume more of medical services than they would without the payment. 
C)  does not cause any change in the equilibrium position for medical services which existed without the subsidy. 
D)  causes the price of medical services to rise for the consumer once the payment is provided.

Question 17

The economic role of the legal system might best be described as

Accepted Answer

A)  promoting the productive efficiency of competitive markets. 
B)  identifying and producing public goods. 
C)  establishing the "rules of the game" and acting as a referee when disputes arise among market participants. 
D)  identifying and producing merit goods. 
A)  promoting the productive efficiency of competitive markets. 
B)  identifying and producing public goods. 
C)  establishing the "rules of the game" and acting as a referee when disputes arise among market participants. 
D)  identifying and producing merit goods.

Question 18

Pollution is caused by a market failure, in an industry in which there is

Accepted Answer

A)  unemployment. 
B)  an over-allocation of resources in production. 
C)  excess demand. 
D)  excessive cost borne by the firm. 
A)  unemployment. 
B)  an over-allocation of resources in production. 
C)  excess demand. 
D)  excessive cost borne by the firm.

Question 19

Explain why ensuring economic stability is an economics function of government?

Accepted Answer

Our economy sometimes faces the problems

Question 20

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

Accepted Answer

A)  majority rule. 
B)  proportional rule. 
C)  government rule. 
D)  profit rule. 
A)  majority rule. 
B)  proportional rule. 
C)  government rule. 
D)  profit rule.

Exam 5: Public Spending and Public Choice

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

An example of a public good is

A political function of government is to

An example of a negative externality created in the market system would be

The government corrects for externalities in all of the following ways EXCEPT

What would happen in a free market system when production of a good generates negative externalities?

List and explain the four key assumptions in the theory of public choice.

The price system will allocate resources efficiently except when

All of the following are characteristics of public goods EXCEPT

An external cost, such as the cost generated by pollution, is

What is an externality? How do positive and negative externalities differ in their effects? How can government action correct positive and negative externalities?

Market failure occurs when

Which of the following is NOT an example of a negative externality?

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

What happens in public schools when government funds subsidize education?

Medicare is an example of a third-party payment for medical services that

The economic role of the legal system might best be described as

Pollution is caused by a market failure, in an industry in which there is

Explain why ensuring economic stability is an economics function of government?

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

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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