Question 1

Receiving a voucher for an apartment in a public housing project would be an example of a good that satisfies

Accepted Answer

A)  the principle of rival consumption. 
B)  the definition of a public good. 
C)  the definition of a good with a positive externality. 
D)  the nonexclusion principle. 
A)  the principle of rival consumption. 
B)  the definition of a public good. 
C)  the definition of a good with a positive externality. 
D)  the nonexclusion principle.

Question 2

Government can correct for negative externalities by

Accepted Answer

A)  decreasing taxes. 
B)  increasing taxes or regulation. 
C)  allowing the market system to correct the problem. 
D)  decreasing the costs to those responsible for the externality. 
A)  decreasing taxes. 
B)  increasing taxes or regulation. 
C)  allowing the market system to correct the problem. 
D)  decreasing the costs to those responsible for the externality.

Question 3

All of the following illustrate how government can correct for positive externalities EXCEPT

Accepted Answer

A)  subsidies. 
B)  regulation. 
C)  government financing and production. 
D)  charging effluent fees. 
A)  subsidies. 
B)  regulation. 
C)  government financing and production. 
D)  charging effluent fees.

Question 4

A characteristic of a public good is that a public good is provided

Accepted Answer

A)  to some businesses, but not to others. 
B)  only in some states. 
C)  to low income residents in some states. 
D)  to many individuals at no additional cost. 
A)  to some businesses, but not to others. 
B)  only in some states. 
C)  to low income residents in some states. 
D)  to many individuals at no additional cost.

Question 5

How do public goods differ from private goods?

Accepted Answer

A private good is characterized by the p

Question 6

When there are too few or too many resources going to an economic activity,

Accepted Answer

A)  a public good exists. 
B)  a market failure exists. 
C)  a regressive tax is in place. 
D)  a free-rider problem exists. 
A)  a public good exists. 
B)  a market failure exists. 
C)  a regressive tax is in place. 
D)  a free-rider problem exists.

Question 7

The principal feature of private goods is that

Accepted Answer

A)  they cannot be rented or purchased. 
B)  consumption by one person reduces the quantity available to others. 
C)  no one can be excluded from consumption of the product. 
D)  externality problems associated with their production are always negative. 
A)  they cannot be rented or purchased. 
B)  consumption by one person reduces the quantity available to others. 
C)  no one can be excluded from consumption of the product. 
D)  externality problems associated with their production are always negative.

Question 8

If the government wishes to correct the existence of positive externality, it could

Accepted Answer

A)  grant subsidies to consumers to stimulate demand. 
B)  impose a tax on the producers to stimulate supply. 
C)  impose taxes on consumers to stimulate demand. 
D)  grant subsidies to producers to reduce supply. 
A)  grant subsidies to consumers to stimulate demand. 
B)  impose a tax on the producers to stimulate supply. 
C)  impose taxes on consumers to stimulate demand. 
D)  grant subsidies to producers to reduce supply.

Question 9

What is an effluent fee? Graphically, show how an effluent fee can correct an externality.

Accepted Answer

Question 10

A situation in which the market system allocates too many resources to the production of a given activity is known as

Accepted Answer

A)  market allocation. 
B)  market failure. 
C)  market efficiency. 
D)  market breakdown. 
A)  market allocation. 
B)  market failure. 
C)  market efficiency. 
D)  market breakdown.

Question 11

Which of the following might be a method that the government could use to correct a negative externality?

Accepted Answer

A)  an effluent fee on waste from the production of goods that create negative externalities 
B)  government subsidies to producers of goods that create negative externalities 
C)  financing additional production of goods that create negative externalities 
D)  encouraging overallocation of resources of production of goods that create negative externalities 
A)  an effluent fee on waste from the production of goods that create negative externalities 
B)  government subsidies to producers of goods that create negative externalities 
C)  financing additional production of goods that create negative externalities 
D)  encouraging overallocation of resources of production of goods that create negative externalities

Question 12

When negative externalities exist, the private market equilibrium represents a

Accepted Answer

A)  market price which is too low and a market quantity which is too low. 
B)  market price which is too low and a market quantity which is too high. 
C)  market price which is too high and a market quantity which is too low. 
D)  market price which is too high and a market quantity which is too high. 
A)  market price which is too low and a market quantity which is too low. 
B)  market price which is too low and a market quantity which is too high. 
C)  market price which is too high and a market quantity which is too low. 
D)  market price which is too high and a market quantity which is too high.

Question 13

The free-rider problem is encountered when

Accepted Answer

A)  someone benefits from the consumption of a public good without paying his or her full share. 
B)  all individuals who consume a public good pay for it. 
C)  all goods consumed and produced are private goods. 
D)  all individuals are willing to pay for what they consume. 
A)  someone benefits from the consumption of a public good without paying his or her full share. 
B)  all individuals who consume a public good pay for it. 
C)  all goods consumed and produced are private goods. 
D)  all individuals are willing to pay for what they consume.

Question 14

Inoculations of children against infectious diseases are

Accepted Answer

A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  dangerous for society. 
D)  an example of a public good. 
A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  dangerous for society. 
D)  an example of a public good.

Question 15

In a free market system, competition generates economic efficiency only when

Accepted Answer

A)  individuals take into account the full opportunity cost of their actions. 
B)  consumers are motivated by a sense of the greater good, not their own self-interest. 
C)  firms are motivated by a sense of the greater good, not their desire for profit. 
D)  economic decisions are taken out the hands of individuals and placed in the hands of government officials. 
A)  individuals take into account the full opportunity cost of their actions. 
B)  consumers are motivated by a sense of the greater good, not their own self-interest. 
C)  firms are motivated by a sense of the greater good, not their desire for profit. 
D)  economic decisions are taken out the hands of individuals and placed in the hands of government officials.

Question 16

The government tries to protect the competitive economic system by passing and enforcing

Accepted Answer

A)  price controls. 
B)  tariff legislation. 
C)  antitrust laws. 
D)  building codes and zoning laws. 
A)  price controls. 
B)  tariff legislation. 
C)  antitrust laws. 
D)  building codes and zoning laws.

Question 17

A fundamental reason that governments provide public goods is

Accepted Answer

A)  the free-rider problem. 
B)  negative externalities are part of the production process. 
C)  public goods are merit goods. 
D)  they are perfectly divisible. 
A)  the free-rider problem. 
B)  negative externalities are part of the production process. 
C)  public goods are merit goods. 
D)  they are perfectly divisible.

Question 18

When does the free-rider problem arise?

Accepted Answer

A)  when someone who benefits from a good does not have to contribute to paying for it 
B)  when a firm does not have to advertise, because its customers recommend the product to their friends 
C)  when policymakers ignore opportunity costs in making decisions 
D)  when production of a good generates pollution 
A)  when someone who benefits from a good does not have to contribute to paying for it 
B)  when a firm does not have to advertise, because its customers recommend the product to their friends 
C)  when policymakers ignore opportunity costs in making decisions 
D)  when production of a good generates pollution

Question 19

A government-inhibited good is often

Accepted Answer

A)  produced by the government. 
B)  subsidized. 
C)  taxed. 
D)  advertised. 
A)  produced by the government. 
B)  subsidized. 
C)  taxed. 
D)  advertised.

Question 20

The legal system provided by the government is necessary for the smooth working of markets because

Accepted Answer

A)  it keeps criminals off of the streets. 
B)  it defines and protects property rights. 
C)  it is set up in the U.S. constitution. 
D)  it ensures that producers maximize their profits. 
A)  it keeps criminals off of the streets. 
B)  it defines and protects property rights. 
C)  it is set up in the U.S. constitution. 
D)  it ensures that producers maximize their profits.

Exam 5: Public Spending and Public Choice

Receiving a voucher for an apartment in a public housing project would be an example of a good that satisfies

Government can correct for negative externalities by

All of the following illustrate how government can correct for positive externalities EXCEPT

A characteristic of a public good is that a public good is provided

How do public goods differ from private goods?

When there are too few or too many resources going to an economic activity,

The principal feature of private goods is that

If the government wishes to correct the existence of positive externality, it could

What is an effluent fee? Graphically, show how an effluent fee can correct an externality.

A situation in which the market system allocates too many resources to the production of a given activity is known as

Which of the following might be a method that the government could use to correct a negative externality?

When negative externalities exist, the private market equilibrium represents a

The free-rider problem is encountered when

Inoculations of children against infectious diseases are

In a free market system, competition generates economic efficiency only when

The government tries to protect the competitive economic system by passing and enforcing

A fundamental reason that governments provide public goods is

When does the free-rider problem arise?

A government-inhibited good is often

The legal system provided by the government is necessary for the smooth working of markets because

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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