Question 1

When there is an external benefit, the unregulated market

Accepted Answer

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

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

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 4

Public goods are

Accepted Answer

A)  rival and exclusive. 
B)  rival, but not exclusive. 
C)  exclusive, but not rival. 
D)  neither exclusive nor rival. 
A)  rival and exclusive. 
B)  rival, but not exclusive. 
C)  exclusive, but not rival. 
D)  neither exclusive nor rival.

Question 5

Which of the following is an example of the free-rider problem?

Accepted Answer

A)  a neighbor who refuses to help pay for a street light that is intended to help reduce crime 
B)  a student who refuses to buy a college catalog 
C)  a law enforcement officer who receives a uniform from the police department 
D)  a fast food employee who is provided food at work 
A)  a neighbor who refuses to help pay for a street light that is intended to help reduce crime 
B)  a student who refuses to buy a college catalog 
C)  a law enforcement officer who receives a uniform from the police department 
D)  a fast food employee who is provided food at work

Question 6

Which one of the following is NOT a characteristic of public goods?

Accepted Answer

A)  They are indivisible. 
B)  It is difficult to charge people on the basis of how much they use. 
C)  Public goods can be used by increasing numbers of people at no additional cost. 
D)  Public goods are subject to the principle of rival consumption. 
A)  They are indivisible. 
B)  It is difficult to charge people on the basis of how much they use. 
C)  Public goods can be used by increasing numbers of people at no additional cost. 
D)  Public goods are subject to the principle of rival consumption.

Question 7

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 8

Which of the following statements is TRUE?

Accepted Answer

A)  Government spending as a percent of total national income has continuously decreased since the 1950s. 
B)  Transfer payments are money payments made by the government for which no goods or services are currently received. 
C)  Education is the largest category of federal government expenditures. 
D)  Transfers in kind include Welfare, Social Security, and unemployment insurance benefits. 
A)  Government spending as a percent of total national income has continuously decreased since the 1950s. 
B)  Transfer payments are money payments made by the government for which no goods or services are currently received. 
C)  Education is the largest category of federal government expenditures. 
D)  Transfers in kind include Welfare, Social Security, and unemployment insurance benefits.

Question 9

What type of policy does the government adopt in dealing with government-inhibited goods?

Accepted Answer

A)  It subsidizes their consumption. 
B)  It subsidizes their production. 
C)  It provides them as public goods. 
D)  It taxes, regulates, or prohibits their use. 
A)  It subsidizes their consumption. 
B)  It subsidizes their production. 
C)  It provides them as public goods. 
D)  It taxes, regulates, or prohibits their use.

Question 10

One characteristic of a public good is that it

Accepted Answer

A)  is available for consumption by only a few individuals at any particular time. 
B)  always eliminates the free-rider problem. 
C)  can be consumed simultaneously by many individuals. 
D)  can be easily subdivided into small units. 
A)  is available for consumption by only a few individuals at any particular time. 
B)  always eliminates the free-rider problem. 
C)  can be consumed simultaneously by many individuals. 
D)  can be easily subdivided into small units.

Question 11

Which of the following is the largest component of federal spending today?

Accepted Answer

A)  income security 
B)  Social Security 
C)  Medicare 
D)  national defense 
A)  income security 
B)  Social Security 
C)  Medicare 
D)  national defense

Question 12

What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why those consequences occur?

Accepted Answer

A positive externality leads to the equi

Question 13

A negative externality is a situation in which

Accepted Answer

A)  there is a spillover of benefits. 
B)  a cost associated with an economic activity is borne by a third party. 
C)  a firm is paying in excess of the total costs of producing a good. 
D)  none of the above. 
A)  there is a spillover of benefits. 
B)  a cost associated with an economic activity is borne by a third party. 
C)  a firm is paying in excess of the total costs of producing a good. 
D)  none of the above.

Question 14

All of the following are major sources for financing public education EXCEPT

Accepted Answer

A)  income taxes. 
B)  sales taxes. 
C)  property taxes. 
D)  government fees. 
A)  income taxes. 
B)  sales taxes. 
C)  property taxes. 
D)  government fees.

Question 15

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 16

A transfer payment is a payment

Accepted Answer

A)  made by the government to its current workers. 
B)  associated with items exported to other nations. 
C)  for in-kind services provided to the government. 
D)  for which no services or goods are rendered. 
A)  made by the government to its current workers. 
B)  associated with items exported to other nations. 
C)  for in-kind services provided to the government. 
D)  for which no services or goods are rendered.

Question 17

An important assumption in the theory of public choice is that

Accepted Answer

A)  individuals will act within the political process to maximize their individual well-being. 
B)  individuals will act within the political process to maximize their collective well-being. 
C)  individuals will only operate outside the political process when their well-being is involved. 
D)  scarcity does not exist in the government sector. 
A)  individuals will act within the political process to maximize their individual well-being. 
B)  individuals will act within the political process to maximize their collective well-being. 
C)  individuals will only operate outside the political process when their well-being is involved. 
D)  scarcity does not exist in the government sector.

Question 18

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 19

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 20

Under present U.S. federal law, which one of the following is a government-inhibited good?

Accepted Answer

A)  housing 
B)  medical care 
C)  marijuana 
D)  education 
A)  housing 
B)  medical care 
C)  marijuana 
D)  education

Exam 5: Public Spending and Public Choice

When there is an external benefit, the unregulated market

Government can correct for negative externalities by

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

Public goods are

Which of the following is an example of the free-rider problem?

Which one of the following is NOT a characteristic of public goods?

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)

Which of the following statements is TRUE?

What type of policy does the government adopt in dealing with government-inhibited goods?

One characteristic of a public good is that it

Which of the following is the largest component of federal spending today?

What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why those consequences occur?

A negative externality is a situation in which

All of the following are major sources for financing public education EXCEPT

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

A transfer payment is a payment

An important assumption in the theory of public choice is that

A fundamental aspect of public goods is that they

Which of the following statements is TRUE of external costs?

Under present U.S. federal law, which one of the following is a government-inhibited good?

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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