Question 1

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  The public's willingness to pay for the 2ⁿᵈ acre of parkland is ________.

Accepted Answer

A) $6. 
B) $8. 
C) $14. 
D) $26.

Question 2

If the popular television show The Bachelor is shown on pay-per-view television every Monday at 9pm, then the demand curve for each episode is given below.  If the regulated pay-per-view charge were $30 per household, what would be the loss in total economic surplus relative to when there is no charge to watch an episode?

Accepted Answer

A) $4,000 million 
B) $2,000 million 
C) $1,280 million 
D) $720 million

Question 3

One justification for the creation of a federal level of government is:

Accepted Answer

A) the ability to deficit spend. 
B) economies of scale in the provision of military defense. 
C) to encourage local diversity in the types of public goods provided. 
D) greater responsiveness to the will of the voters.

Question 4

Logrolling refers to:

Accepted Answer

A) legislation that affects the timber industry. 
B) the practice whereby legislators support each other's pork barrel spending. 
C) the practice of introducing many similar bills in hopes that one of the versions will pass. 
D) the practice of attaching a controversial bill to a large appropriations bill.

Question 5

The problems of externalities and poorly formed property rights are:

Accepted Answer

A) minor in modern economies. 
B) among several rationales for the existence of government. 
C) better solved by private rather than government action. 
D) the only two legitimate reasons for creating government.

Question 6

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ________ acres.

Accepted Answer

A) 2 
B) 4 
C) 6 
D) 8

Question 7

The government can raise tax revenue and increase total economic surplus by taxing:

Accepted Answer

A) goods that generate positive externalities. 
B) goods that generate negative externalities. 
C) luxury goods that are primarily consumed by wealthy individuals. 
D) goods whose supply and demand curves are highly elastic.

Question 8

There are ten states in the democratic nation of Katlandia, and each state has ten thousand residents. Although incomes vary, each Katlandian pays a tax equal to the total cost of all government projects divided by the number of residents in the country. Currently, two states each have one army base. An army base adds $2 million to a state's local economy each year. In addition, in terms of increased security, the annual marginal benefit to Katlandia of having an additional army base is shown below. The total cost of an army base is $8 million per year.  Suppose the department of defense proposes to build a third base in the state of New Porkswick. Apart from the value of the additional security to the nation, the state economy will benefit by ________ per resident, and each resident's taxes will increase by ________.

Accepted Answer

A) $200; $800 
B) $20; $800 
C) $200; $80 
D) $20; $80

Question 9

A good or service that is highly nonrival and highly nonexcludable is a(n)________ good.

Accepted Answer

A) pure public 
B) commons 
C) collective 
D) private

Question 10

The presence of an unregulated negative externality means that the unregulated market equilibrium quantity is:

Accepted Answer

A) efficient. 
B) smaller than is optimal. 
C) larger than is optimal. 
D) greater than demand.

Question 11

A pure public good is one that is:

Accepted Answer

A) highly nonrival and highly nonexcludable. 
B) neither nonrival nor nonexcludable. 
C) nonexcludable but rival. 
D) nonrival but excludable.

Question 12

If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below.  If there is a pay-per-view charge to watch a fight, the outcome is ________ because ________.

Accepted Answer

A) efficient; prices will allocate the program to those who value it the most 
B) efficient; the marginal cost of an additional viewing household is zero 
C) inefficient; the marginal cost of an additional viewing household is zero 
D) inefficient; television stations would not always make a profit

Question 13

Beyond the provision of public goods, government exists to address:

Accepted Answer

A) national defense. 
B) the problem of declining moral values. 
C) limiting personal freedom. 
D) externalities and property rights.

Question 14

If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below.  If the regulated pay-per-view charge to watch a fight were $5 per household, then what would be the loss in total economic surplus relative to when the there is no charge to watch the fight?

Accepted Answer

A) $25 million 
B) $50 million 
C) $225 million 
D) $625 million

Question 15

The deadweight loss from taxing a good will be smaller for goods:

Accepted Answer

A) whose supply and demand curves are more inelastic. 
B) whose supply and demand curves are more elastic. 
C) that are relatively expensive. 
D) that are consumed by a large fraction of the population.

Question 16

For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is ________, and the optimal quantity of the public good occurs when ________.

Accepted Answer

A) zero; provision is infinite. 
B) determined by average cost rather than marginal cost; price equals average cost. 
C) greater than the average cost; the government provides the good. 
D) zero; the marginal benefit of the public good equals zero.

Question 17

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. $$\begin{array} { | c | c | r | r | } 
\hline & \text { Mar ginal benefit } & \text { Marginal cost } & { \text { Total spending an the public } } \
\hline \text { Public pood 1 } & \$ 20 & \$ 20 & \$ 1,500 \
\hline \text { Public pood 2 } & \$ 15 & \$ 25 & \$ 800 \
\hline \text { Public pood 3 } & \$ 10 & \$ 5 & \$ 700 \
\hline
\end{array}$$  
The government is spending the socially optimal amount on:

Accepted Answer

A) public good 1. 
B) public good 2. 
C) public good 3. 
D) public good 1 and public good 2.

Question 18

Curly pays $12,000 in taxes and earns $150,000. Moe pays $7,000 in taxes. If the tax system is proportional, then Moe's income is:

Accepted Answer

A) $56,000. 
B) $125,000. 
C) $87,500. 
D) $98,000.

Question 19

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  The public is willing to pay $14 for the ________ acre of parkland.

Accepted Answer

A) $6. 
B) $8. 
C) $14 
D) $20.

Question 20

If low-income households spend a larger share of their income on food than do high-income households, then a tax on food is:

Accepted Answer

A) a progressive tax. 
B) a regressive tax. 
C) a proportional tax. 
D) a way to redistribute from the wealthy to the poor.

Exam 14: Public Goods and Tax Policy

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public's willingness to pay for the 2ⁿᵈ acre of parkland is ________.

One justification for the creation of a federal level of government is:

Logrolling refers to:

The problems of externalities and poorly formed property rights are:

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ________ acres.

The government can raise tax revenue and increase total economic surplus by taxing:

A good or service that is highly nonrival and highly nonexcludable is a(n) ________ good.

The presence of an unregulated negative externality means that the unregulated market equilibrium quantity is:

A pure public good is one that is:

If a boxing fight is shown on pay-per-view television every Saturday at 4pm, the demand curve for each fight is given below. If there is a pay-per-view charge to watch a fight, the outcome is because .

Beyond the provision of public goods, government exists to address:

The deadweight loss from taxing a good will be smaller for goods:

For many pure public goods like fireworks displays, weather forecasts, and television broadcasts the marginal cost of serving one more consumer is , and the optimal quantity of the public good occurs when .

Curly pays $12,000 in taxes and earns $150,000. Moe pays $7,000 in taxes. If the tax system is proportional, then Moe's income is:

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public is willing to pay $14 for the ________ acre of parkland.

If low-income households spend a larger share of their income on food than do high-income households, then a tax on food is: