Question 1

My brother decides to leave his empty soda can on someone's lawn. This is an example of a

Accepted Answer

A) public good. 
B) positive externality. 
C) neutral externality. 
D) negative externality. 
A) public good. 
B) positive externality. 
C) neutral externality. 
D) negative externality.

Question 2

Why does our government enforce antitrust legislation?

Accepted Answer

A) because monopolies are known to be unfair to their stockholders 
B) because monopolies are known to be unfair to their employees 
C) because the government wants to create competition in markets in the interests of promoting efficiency 
D) because the government wants to create competition in markets in the interests of promoting an equal distribution of income 
A) because monopolies are known to be unfair to their stockholders 
B) because monopolies are known to be unfair to their employees 
C) because the government wants to create competition in markets in the interests of promoting efficiency 
D) because the government wants to create competition in markets in the interests of promoting an equal distribution of income

Question 3

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 4

-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 5

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

Accepted Answer

A) a negative externality. 
B) a private good. 
C) the need for antitrust legislation. 
D) a free rider. 
A) a negative externality. 
B) a private good. 
C) the need for antitrust legislation. 
D) a free rider.

Question 6

Markets tend to underallocate resources to the production of a good when

Accepted Answer

A) there are negative externalities. 
B) there are positive externalities. 
C) there are public goods produced. 
D) equilibrium occurs. 
A) there are negative externalities. 
B) there are positive externalities. 
C) there are public goods produced. 
D) equilibrium occurs.

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

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 9

Which of the following will LEAST likely generate positive external benefits to society?

Accepted Answer

A) Education 
B) The use of cell phone services 
C) Health care 
D) Requiring drivers to undergo periodic eye examinations 
A) Education 
B) The use of cell phone services 
C) Health care 
D) Requiring drivers to undergo periodic eye examinations

Question 10

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 11

Positive externalities arise when

Accepted Answer

A) an unprofitable firm is shut down. 
B) a profitable firm is regulated. 
C) tax rates are reduced. 
D) production of a good generates benefits that spill over to third parties. 
A) an unprofitable firm is shut down. 
B) a profitable firm is regulated. 
C) tax rates are reduced. 
D) production of a good generates benefits that spill over to third parties.

Question 12

The funding of public education is

Accepted Answer

A) a private program. 
B) a subsidy program. 
C) done by voluntary contributions. 
D) provided by Social Security. 
A) a private program. 
B) a subsidy program. 
C) done by voluntary contributions. 
D) provided by Social Security.

Question 13

When government intervenes in the production process because external costs exist, it typically attempts to shift the industry's

Accepted Answer

A) demand curve to the right. 
B) demand curve to the left. 
C) supply curve to the right. 
D) supply curve to the left. 
A) demand curve to the right. 
B) demand curve to the left. 
C) supply curve to the right. 
D) supply curve to the left.

Question 14

External costs can be defined as

Accepted Answer

A) the cost associated with private production, but partially borne by society. 
B) the sum of all private production costs. 
C) the cost of running the federal government. 
D) the cost of providing all public goods and services. 
A) the cost associated with private production, but partially borne by society. 
B) the sum of all private production costs. 
C) the cost of running the federal government. 
D) the cost of providing all public goods and services.

Question 15

An economic activity in which benefits or costs affect third parties is called

Accepted Answer

A) a public good. 
B) a third-party good. 
C) the exclusion principle. 
D) an externality. 
A) a public good. 
B) a third-party good. 
C) the exclusion principle. 
D) an externality.

Question 16

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 17

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 18

Which of the following is heavily subsidized by state and local governments?

Accepted Answer

A) Medicare 
B) Social Security 
C) public education 
D) food stamps 
A) Medicare 
B) Social Security 
C) public education 
D) food stamps

Question 19

The theory of public choice

Accepted Answer

A) is the theory of how government decides on what military hardware to purchase. 
B) considers government decision-making efficient. 
C) is the study of collective decision making. 
D) is the study of how negative externalities can be reduced. 
A) is the theory of how government decides on what military hardware to purchase. 
B) considers government decision-making efficient. 
C) is the study of collective decision making. 
D) is the study of how negative externalities can be reduced.

Question 20

-Refer to the above figure. The market equilibrium quantity is   . Point   represents the optimal amount of production. This indicates that there is

Accepted Answer

A) a public good which should be produced. 
B) regressive taxation of the product. 
C) a positive externality. 
D) a negative externality. 
A) a public good which should be produced. 
B) regressive taxation of the product. 
C) a positive externality. 
D) a negative externality.

Exam 5: Public Spending and Public Choice

My brother decides to leave his empty soda can on someone's lawn. This is an example of a

Why does our government enforce antitrust legislation?

When negative externalities exist, the private market equilibrium represents a

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

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

Markets tend to underallocate resources to the production of a good when

The principal feature of private goods is that

When there is an external cost, the unregulated market

Which of the following will LEAST likely generate positive external benefits to society?

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

Positive externalities arise when

The funding of public education is

When government intervenes in the production process because external costs exist, it typically attempts to shift the industry's

External costs can be defined as

An economic activity in which benefits or costs affect third parties is called

A government-sponsored good is one that

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 is heavily subsidized by state and local governments?

The theory of public choice

-Refer to the above figure. The market equilibrium quantity is . Point represents the optimal amount of production. This indicates that there 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

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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