Question 1

-In the above figure, if a Medicare subsidy that had previously been paid by the government has now been eliminated, the result will be

Accepted Answer

A)  an increase in the price received by producers, from   to   . 
B)  a decrease in the price received by producers, from   to   . 
C)  an increase in the price paid by consumers, from   to   . 
D)  a decrease in the price paid by consumers, from   to   . 
A)  an increase in the price received by producers, from   to   . 
B)  a decrease in the price received by producers, from   to   . 
C)  an increase in the price paid by consumers, from   to   . 
D)  a decrease in the price paid by consumers, from   to   .

Question 2

If production of an item results in negative external costs, then

Accepted Answer

A)  the market price is below the socially preferred price that reflects the external costs. 
B)  the market price is above the socially preferred price that reflects the external costs. 
C)  market forces will always correct the problem. 
D)  the market quantity is too low from society's point of view. 
A)  the market price is below the socially preferred price that reflects the external costs. 
B)  the market price is above the socially preferred price that reflects the external costs. 
C)  market forces will always correct the problem. 
D)  the market quantity is too low from society's point of view.

Question 3

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

Accepted Answer

A)  The good is priced too low. 
B)  An external benefit is associated with good X. 
C)  Resources are over-allocated in the production of good X. 
D)  Too much of good X is being produced. 
A)  The good is priced too low. 
B)  An external benefit is associated with good X. 
C)  Resources are over-allocated in the production of good X. 
D)  Too much of good X is being produced.

Question 4

All of the following generate positive externalities EXCEPT

Accepted Answer

A)  public health programs. 
B)  lower marginal tax rates. 
C)  requiring proof of inoculation before entering college. 
D)  requiring proof of inoculation before entering elementary school. 
A)  public health programs. 
B)  lower marginal tax rates. 
C)  requiring proof of inoculation before entering college. 
D)  requiring proof of inoculation before entering elementary school.

Question 5

Economically speaking, the design of Medicare

Accepted Answer

A)  encourages the consumption of medical services. 
B)  discourages the consumption of medical services. 
C)  helps to decrease the cost of care to non-Medicare patients. 
D)  discourages the provision of medical services. 
A)  encourages the consumption of medical services. 
B)  discourages the consumption of medical services. 
C)  helps to decrease the cost of care to non-Medicare patients. 
D)  discourages the provision of medical services.

Question 6

When market failures occur,

Accepted Answer

A)  the invisible had will correct for the market failures. 
B)  the price system will correct the market failures. 
C)  people will reduce their consumption. 
D)  the government can step in to correct the market failure. 
A)  the invisible had will correct for the market failures. 
B)  the price system will correct the market failures. 
C)  people will reduce their consumption. 
D)  the government can step in to correct the market failure.

Question 7

According to your text, which of the following represents the largest component of federal spending?

Accepted Answer

A)  Education 
B)  Social Security 
C)  Medicare 
D)  National Defense 
A)  Education 
B)  Social Security 
C)  Medicare 
D)  National Defense

Question 8

The opportunity cost of providing a public good to an additional individual is

Accepted Answer

A)  infinite. 
B)  zero. 
C)  impossible to determine. 
D)  high because of the exclusion principle. 
A)  infinite. 
B)  zero. 
C)  impossible to determine. 
D)  high because of the exclusion principle.

Question 9

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 above figures. Prior to the shift of the curves, which panel and which curve involve the existence of negative externality?

Accepted Answer

A)  Panel 1 and S1 
B)  Panel 1 and S2  
C)  Panel 2 and D1 
D)  Panel 2 and D2 
A)  Panel 1 and S1 
B)  Panel 1 and S2  
C)  Panel 2 and D1 
D)  Panel 2 and D2

Question 10

Which of the following is an example of a public good?

Accepted Answer

A)  Flood control 
B)  Post Office 
C)  Health care 
D)  Welfare 
A)  Flood control 
B)  Post Office 
C)  Health care 
D)  Welfare

Question 11

A government-sponsored good is one that

Accepted Answer

A)  everybody is willing to support with funding contributions. 
B)  is inherently valuable. 
C)  the political process has determined socially desirable. 
D)  everybody will receive concrete benefits from. 
A)  everybody is willing to support with funding contributions. 
B)  is inherently valuable. 
C)  the political process has determined socially desirable. 
D)  everybody will receive concrete benefits from.

Question 12

The non-exclusion principle means

Accepted Answer

A)  no one can be excluded from the benefits of a public good, even if the person does not pay for it. 
B)  no one can be excluded from the benefits of a private good, even if only one person pays for it. 
C)  no one who pays for a public good can be excluded from receiving the benefits of a public good. 
D)  people who do not pay for a public good can be excluded from receiving its benefits. 
A)  no one can be excluded from the benefits of a public good, even if the person does not pay for it. 
B)  no one can be excluded from the benefits of a private good, even if only one person pays for it. 
C)  no one who pays for a public good can be excluded from receiving the benefits of a public good. 
D)  people who do not pay for a public good can be excluded from receiving its benefits.

Question 13

Government outlays include all of the following EXCEPT

Accepted Answer

A)  dividend payments. 
B)  spending on the military. 
C)  electricity for the Capital Building. 
D)  letterhead stationery. 
A)  dividend payments. 
B)  spending on the military. 
C)  electricity for the Capital Building. 
D)  letterhead stationery.

Question 14

Private goods are goods

Accepted Answer

A)  that carry a price. 
B)  for which price is greater than zero. 
C)  for which the more one person has the less is available for someone else. 
D)  that are produced by the government. 
A)  that carry a price. 
B)  for which price is greater than zero. 
C)  for which the more one person has the less is available for someone else. 
D)  that are produced by the government.

Question 15

Which of the following is a transfer payment? I. Social Security
II) Unemployment benefits

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 16

Which of the following statements is true of external costs?

Accepted Answer

A)  External costs should not be corrected since people will bear the costs whether they are corrected or not. 
B)  There are no good ways to correct for the external costs. 
C)  When external costs exist, the price of the good will be deceptively low leading to an overallocation of resources. 
D)  External costs should only be corrected for if the correction will not increase the market price. 
A)  External costs should not be corrected since people will bear the costs whether they are corrected or not. 
B)  There are no good ways to correct for the external costs. 
C)  When external costs exist, the price of the good will be deceptively low leading to an overallocation of resources. 
D)  External costs should only be corrected for if the correction will not increase the market price.

Question 17

Society is likely to over-allocate resources to produce goods that

Accepted Answer

A)  are public goods. 
B)  are merit goods. 
C)  generate positive externalities. 
D)  generate negative externalities. 
A)  are public goods. 
B)  are merit goods. 
C)  generate positive externalities. 
D)  generate negative externalities.

Question 18

Which event was most important in promoting the belief that the U.S. government should work to ensure economy-wide stability?

Accepted Answer

A)  World War II 
B)  The Civil Rights Movement 
C)  The California Gold Rush 
D)  The Great Depression 
A)  World War II 
B)  The Civil Rights Movement 
C)  The California Gold Rush 
D)  The Great Depression

Question 19

-Refer to the above figure. Medicare subsidies have increased the price of medical services to   . Which of the following statements is true about the effect the Medicare subsidy has had on the consumption of medical services?

Accepted Answer

A)  The amount of medical services provided has decreased from   to   as a result of the subsidy. 
B)  The amount of medical services provided has increased from   to   as a result of the subsidy. 
C)  The amount of medical services provided has increased from   to   as a result of the subsidy. 
D)  The amount of medical services provided has remained unchanged as a result of the subsidy. 
A)  The amount of medical services provided has decreased from   to   as a result of the subsidy. 
B)  The amount of medical services provided has increased from   to   as a result of the subsidy. 
C)  The amount of medical services provided has increased from   to   as a result of the subsidy. 
D)  The amount of medical services provided has remained unchanged as a result of the subsidy.

Exam 5: Public Spending and Public Choice

-In the above figure, if a Medicare subsidy that had previously been paid by the government has now been eliminated, the result will be

If production of an item results in negative external costs, then

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

All of the following generate positive externalities EXCEPT

Economically speaking, the design of Medicare

When market failures occur,

According to your text, which of the following represents the largest component of federal spending?

The opportunity cost of providing a public good to an additional individual is

Which of the following is an example of a public good?

A government-sponsored good is one that

The non-exclusion principle means

Government outlays include all of the following EXCEPT

Private goods are goods

Which of the following is a transfer payment? I. Social Security II) Unemployment benefits

Which of the following statements is true of external costs?

Society is likely to over-allocate resources to produce goods that

Which event was most important in promoting the belief that the U.S. government should work to ensure economy-wide stability?

-Refer to the above figure. Medicare subsidies have increased the price of medical services to . Which of the following statements is true about the effect the Medicare subsidy has had on the consumption of medical services?

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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