Question 1

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 2

When a firm produces a product that creates external costs

Accepted Answer

A)  the firm produces a level of output larger than would be produced without the external cost. 
B)  the firm produces a level of output smaller than would be produced without the external cost. 
C)  the firm produces a level of output which would be the same as it would produce without the external cost. 
D)  the market provides the efficient level of output even with the existence of the external cost. 
A)  the firm produces a level of output larger than would be produced without the external cost. 
B)  the firm produces a level of output smaller than would be produced without the external cost. 
C)  the firm produces a level of output which would be the same as it would produce without the external cost. 
D)  the market provides the efficient level of output even with the existence of the external cost.

Question 3

-If the government wishes to correct the existence of a negative externality, it could

Accepted Answer

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

Question 4

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift ________, and the market demand curve for the product will shift ________.

Accepted Answer

A)  to the right; to the right 
B)  to the right; to the left 
C)  to the left; to the left 
D)  to the left; to the right 
A)  to the right; to the right 
B)  to the right; to the left 
C)  to the left; to the left 
D)  to the left; to the right

Question 5

Which of the following is a benefit of the price system?

Accepted Answer

A)  the existence of positive externalities 
B)  the production of public goods 
C)  Consumers have what they want since politicians and business managers decide what is to be produced. 
D)  the freedom of consumers to decide what they want to purchase 
A)  the existence of positive externalities 
B)  the production of public goods 
C)  Consumers have what they want since politicians and business managers decide what is to be produced. 
D)  the freedom of consumers to decide what they want to purchase

Question 6

Examples of transfer payments are

Accepted Answer

A)  wages, profits, and rents. 
B)  Social Security checks and unemployment insurance payments. 
C)  salaries of educators, police, and firefighters. 
D)  federal government spending for national defense. 
A)  wages, profits, and rents. 
B)  Social Security checks and unemployment insurance payments. 
C)  salaries of educators, police, and firefighters. 
D)  federal government spending for national defense.

Question 7

Which of the following is best characterized as a public good?

Accepted Answer

A)  a public library 
B)  a church 
C)  primary education 
D)  police protection 
A)  a public library 
B)  a church 
C)  primary education 
D)  police protection

Question 8

A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

Accepted Answer

A)  competition. 
B)  excessive competition. 
C)  destructive competition. 
D)  a market failure. 
A)  competition. 
B)  excessive competition. 
C)  destructive competition. 
D)  a market failure.

Question 9

All of the following are assumptions of both market and public-sector decision making EXCEPT

Accepted Answer

A)  Decisions are based on majority rule. 
B)  Decisions are motivated by individuals' self-interest. 
C)  Opportunity costs exist in decisions. 
D)  Choices reflect incentives faced by decision makers. 
A)  Decisions are based on majority rule. 
B)  Decisions are motivated by individuals' self-interest. 
C)  Opportunity costs exist in decisions. 
D)  Choices reflect incentives faced by decision makers.

Question 10

Which of the following is a political function of government but is NOT a central economic function?

Accepted Answer

A)  determining who has a right to vote 
B)  determining government-sponsored and government-inhibited goods 
C)  providing a legal system to adjudicate property rights 
D)  redistributing income from some individuals to others 
A)  determining who has a right to vote 
B)  determining government-sponsored and government-inhibited goods 
C)  providing a legal system to adjudicate property rights 
D)  redistributing income from some individuals to others

Question 11

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 12

One reason the Medicare system costs so much is

Accepted Answer

A)  the amount of medical services is determined by the equilibrium of supply and demand. 
B)  the supply of medical services does not respond to price changes. 
C)  supply and demand analysis does not apply. 
D)  beneficiaries are entitled to receive services for which the per-unit cost exceeds their own personal out-of-pocket payment. 
A)  the amount of medical services is determined by the equilibrium of supply and demand. 
B)  the supply of medical services does not respond to price changes. 
C)  supply and demand analysis does not apply. 
D)  beneficiaries are entitled to receive services for which the per-unit cost exceeds their own personal out-of-pocket payment.

Question 13

One key assumption of the theory of public choice is that individuals

Accepted Answer

A)  are always in favor of the collective well-being of the public instead their own well-being. 
B)  are always concerned about the well-being of other individuals in society. 
C)  act differently between the public sector and the market sector. 
D)  act within the political process to maximize their individual well-being. 
A)  are always in favor of the collective well-being of the public instead their own well-being. 
B)  are always concerned about the well-being of other individuals in society. 
C)  act differently between the public sector and the market sector. 
D)  act within the political process to maximize their individual well-being.

Question 14

Market failure means that

Accepted Answer

A)  the strike organized by unionized employees fails to achieve its goal. 
B)  too many outdated products are offered for sale in the local supermarket. 
C)  there is overallocation or underallocation of resources to certain economic activity. 
D)  an unexpectedly harsh winter shuts down a factory. 
A)  the strike organized by unionized employees fails to achieve its goal. 
B)  too many outdated products are offered for sale in the local supermarket. 
C)  there is overallocation or underallocation of resources to certain economic activity. 
D)  an unexpectedly harsh winter shuts down a factory.

Question 15

The U.S. antitrust laws

Accepted Answer

A)  aid monopolies in their quest to dominate the market for a good or service. 
B)  are outdated and rarely used anymore. 
C)  promote competition. 
D)  are administered by the Department of Commerce. 
A)  aid monopolies in their quest to dominate the market for a good or service. 
B)  are outdated and rarely used anymore. 
C)  promote competition. 
D)  are administered by the Department of Commerce.

Question 16

All of the following are ways that the government can correct for positive externalities EXCEPT

Accepted Answer

A)  by subsidizing the consumption of the good. 
B)  producing the good itself. 
C)  by regulation. 
D)  by assessing an effluent fee. 
A)  by subsidizing the consumption of the good. 
B)  producing the good itself. 
C)  by regulation. 
D)  by assessing an effluent fee.

Question 17

A government-sponsored good is one that

Accepted Answer

A)  is desirable to no one but ruled desirable by the court system nonetheless. 
B)  everyone agrees is socially desirable. 
C)  freely competitive markets have determined is socially desirable. 
D)  the political process has determined is socially desirable. 
A)  is desirable to no one but ruled desirable by the court system nonetheless. 
B)  everyone agrees is socially desirable. 
C)  freely competitive markets have determined is socially desirable. 
D)  the political process has determined is socially desirable.

Question 18

A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $1 million to build and serves 100 ships a month. If the shipping in the area increases so that 200 ships pass by a month, the increase in additional costs of providing the light to these new ships is

Accepted Answer

A)  $1 million. 
B)  $100,000. 
C)  $5,000. 
D)  $0. 
A)  $1 million. 
B)  $100,000. 
C)  $5,000. 
D)  $0.

Question 19

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

Accepted Answer

A)  poverty. 
B)  unemployment. 
C)  a change in one consumer's tastes and preferences. 
D)  water pollution. 
A)  poverty. 
B)  unemployment. 
C)  a change in one consumer's tastes and preferences. 
D)  water pollution.

Question 20

Private goods are those goods

Accepted Answer

A)  that violate the principle of rival consumption. 
B)  for which no public market exists. 
C)  that can only be consumed by one individual at a time. 
D)  to which the non-exclusion principle applies. 
A)  that violate the principle of rival consumption. 
B)  for which no public market exists. 
C)  that can only be consumed by one individual at a time. 
D)  to which the non-exclusion principle applies.

Exam 5: Public Spending and Public Choice

To correct for negative externalities, the government

When a firm produces a product that creates external costs

-If the government wishes to correct the existence of a negative externality, it could

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift ________, and the market demand curve for the product will shift ________.

Which of the following is a benefit of the price system?

Examples of transfer payments are

Which of the following is best characterized as a public good?

A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

All of the following are assumptions of both market and public-sector decision making EXCEPT

Which of the following is a political function of government but is NOT a central economic function?

The free-rider problem is encountered when

One reason the Medicare system costs so much is

One key assumption of the theory of public choice is that individuals

Market failure means that

The U.S. antitrust laws

All of the following are ways that the government can correct for positive externalities EXCEPT

A government-sponsored good is one that

A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $1 million to build and serves 100 ships a month. If the shipping in the area increases so that 200 ships pass by a month, the increase in additional costs of providing the light to these new ships is

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

Private goods are those goods

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

Filters

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift , and the market demand curve for the product will shift .