Question 1

Subsidies paid to the health care industry for Medicare patients are paid by

Accepted Answer

A)  Congress. 
B)  the Teamsters union. 
C)  current taxes. 
D)  the Federal Reserve. 
A)  Congress. 
B)  the Teamsters union. 
C)  current taxes. 
D)  the Federal Reserve.

Question 2

What is the assumption underlying public-choice theory?

Accepted Answer

A)  Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B)  The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C)  Individuals act within the political process to improve their own individual well-being. 
D)  Resources in the public sector are not scarce. 
A)  Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B)  The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C)  Individuals act within the political process to improve their own individual well-being. 
D)  Resources in the public sector are not scarce.

Question 3

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 cost 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 4

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

Accepted Answer

A)  less than the price that consumers pay to receive educational services. 
B)  less than the amount of the per-unit subsidy that the schools receive. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero. 
A)  less than the price that consumers pay to receive educational services. 
B)  less than the amount of the per-unit subsidy that the schools receive. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero.

Question 5

When a good causes positive external benefits to accrue to third parties, an unfettered market will

Accepted Answer

A)  under-allocate resources to the good causing the benefit. 
B)  over-allocate resources to the good causing the benefit. 
C)  cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently. 
D)  eliminate such goods. 
A)  under-allocate resources to the good causing the benefit. 
B)  over-allocate resources to the good causing the benefit. 
C)  cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently. 
D)  eliminate such goods.

Question 6

In the United States, which of the following is an example of a government-sponsored good?

Accepted Answer

A)  Cable T.V. 
B)  Concerts 
C)  Cigarettes 
D)  Coffee 
A)  Cable T.V. 
B)  Concerts 
C)  Cigarettes 
D)  Coffee

Question 7

A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals

Accepted Answer

A)  is unimportant since the firm is reducing the unemployment in the region. 
B)  creates a negative externality. 
C)  is the production of a public good. 
D)  creates a positive externality. 
A)  is unimportant since the firm is reducing the unemployment in the region. 
B)  creates a negative externality. 
C)  is the production of a public good. 
D)  creates a positive externality.

Question 8

Use the concept of supply and demand to explain why an increase in Medicare subsidies can lead to an increase in health care spending by the government.

Accepted Answer

Medicare reduces the price that the elde

Question 9

To correct for negative externalities, the government

Accepted Answer

A)  should allow the price system do the correction. 
B)  can impose a tax. 
C)  can provide a subsidy to consumers. 
D)  should create a public good. 
A)  should allow the price system do the correction. 
B)  can impose a tax. 
C)  can provide a subsidy to consumers. 
D)  should create a public good.

Question 10

When there is an external cost, the unregulated market

Accepted Answer

A)  overproduces the good or service. 
B)  underproduces the good or service. 
C)  reaches the most efficient solution. 
D)  minimizes public welfare. 
A)  overproduces the good or service. 
B)  underproduces the good or service. 
C)  reaches the most efficient solution. 
D)  minimizes public welfare.

Question 11

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

Accepted Answer

When the market fails to provide certain

Question 12

-Refer to the above figure. Medicare subsidies have increased the price of medical services to   . The perceived price on the part of consumers is

Accepted Answer

A)    . 
B)    . 
C)    . 
D)  undetermined without more information. 
A)    . 
B)    . 
C)    . 
D)  undetermined without more information.

Question 13

Which of the following is a major reason why the Medicare program is in such financial trouble?

Accepted Answer

A)  Workers are not paying enough into the program. 
B)  The government set reimbursement rates too high. 
C)  Because medical services are subsidized by the government, both consumption by the elderly and the cost of services have increased. 
D)  There is a shortage of medical school applicants. 
A)  Workers are not paying enough into the program. 
B)  The government set reimbursement rates too high. 
C)  Because medical services are subsidized by the government, both consumption by the elderly and the cost of services have increased. 
D)  There is a shortage of medical school applicants.

Question 14

To correct for the underproduction of products with positive externalities, the government must

Accepted Answer

A)  provide the incentives for the private sector to produce and consume the good. 
B)  provide tougher regulations on the industry. 
C)  increase taxes on the industry. 
D)  fine the industry. 
A)  provide the incentives for the private sector to produce and consume the good. 
B)  provide tougher regulations on the industry. 
C)  increase taxes on the industry. 
D)  fine the industry.

Question 15

According to your text, which of the following represents the largest source of tax receipts for the Federal government?

Accepted Answer

A)  sales taxes 
B)  individual income taxes 
C)  corporate income taxes 
D)  property taxes 
A)  sales taxes 
B)  individual income taxes 
C)  corporate income taxes 
D)  property taxes

Question 16

A fundamental aspect of public goods is that they

Accepted Answer

A)  are just like private goods EXCEPT that everybody wants to consume the same amount. 
B)  have positive externalities. 
C)  are characterized by the principle of rival consumption. 
D)  can be consumed jointly by many people simultaneously. 
A)  are just like private goods EXCEPT that everybody wants to consume the same amount. 
B)  have positive externalities. 
C)  are characterized by the principle of rival consumption. 
D)  can be consumed jointly by many people simultaneously.

Question 17

Which of the following does NOT describe the intended purpose of the antitrust laws of the United States?

Accepted Answer

A)  To promote competition within the economic system 
B)  To reduce the power of monopolies 
C)  To prohibit certain economic activities that promote trade 
D)  To restrict the formation of monopolies 
A)  To promote competition within the economic system 
B)  To reduce the power of monopolies 
C)  To prohibit certain economic activities that promote trade 
D)  To restrict the formation of monopolies

Question 18

How does the government carry out income redistribution?

Accepted Answer

Income redistribution can be carried out

Question 19

A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called

Accepted Answer

A)  a public good. 
B)  a merit good. 
C)  an externality. 
D)  the free-rider problem. 
A)  a public good. 
B)  a merit good. 
C)  an externality. 
D)  the free-rider problem.

Question 20

An example of an in-kind transfer is

Accepted Answer

A)  national defense. 
B)  Social Security. 
C)  low-cost public housing. 
D)  Unemployment benefits. 
A)  national defense. 
B)  Social Security. 
C)  low-cost public housing. 
D)  Unemployment benefits.

Exam 5: Public Spending and Public Choice

Subsidies paid to the health care industry for Medicare patients are paid by

What is the assumption underlying public-choice theory?

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 cost exists. This will lead to a(n)

When state and local governments provide public schools with a per-unit subsidy to provide educational services, the price that the schools providing these services receive is

When a good causes positive external benefits to accrue to third parties, an unfettered market will

In the United States, which of the following is an example of a government-sponsored good?

Use the concept of supply and demand to explain why an increase in Medicare subsidies can lead to an increase in health care spending by the government.

To correct for negative externalities, the government

When there is an external cost, the unregulated market

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

-Refer to the above figure. Medicare subsidies have increased the price of medical services to . The perceived price on the part of consumers is

Which of the following is a major reason why the Medicare program is in such financial trouble?

To correct for the underproduction of products with positive externalities, the government must

According to your text, which of the following represents the largest source of tax receipts for the Federal government?

A fundamental aspect of public goods is that they

Which of the following does NOT describe the intended purpose of the antitrust laws of the United States?

How does the government carry out income redistribution?

A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called

An example of an in-kind transfer is

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

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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

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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

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Environmental Economics

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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 cost exists. This will lead to a(n)