Question 1

A government action that can help correct positive externalities is

Accepted Answer

A) a tax on producers of the good that provides external benefits. 
B) a subsidy to consumers of the good that provides external benefits. 
C) an effluent fee charged to producers of the good that provides external benefits. 
D) regulations aimed at reduced production by sellers of the good that provides external benefits. 
A) a tax on producers of the good that provides external benefits. 
B) a subsidy to consumers of the good that provides external benefits. 
C) an effluent fee charged to producers of the good that provides external benefits. 
D) regulations aimed at reduced production by sellers of the good that provides external benefits.

Question 2

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

Accepted Answer

A) resources are under-allocated to the industry. 
B) the equilibrium market price of the product includes the external costs borne by society. 
C) resources are over-allocated to the industry. 
D) at the market price, quantity demanded is less than quantity supplied. 
A) resources are under-allocated to the industry. 
B) the equilibrium market price of the product includes the external costs borne by society. 
C) resources are over-allocated to the industry. 
D) at the market price, quantity demanded is less than quantity supplied.

Question 3

One way that the government encourages the production of a good with positive externalities is to offer

Accepted Answer

A) an effluent fee. 
B) a market to pollute. 
C) a subsidy. 
D) a pollution tax. 
A) an effluent fee. 
B) a market to pollute. 
C) a subsidy. 
D) a pollution tax.

Question 4

When comparing market and public sector decision making, which statement is NOT true?

Accepted Answer

A) Self-interest is the motivating force in each decision making arena. 
B) In both decision making sectors, majority rule is how things are done. 
C) In both decision making sectors, there are scarcity constraints. 
D) Collective (political)outcomes and economic outcomes may differ. 
A) Self-interest is the motivating force in each decision making arena. 
B) In both decision making sectors, majority rule is how things are done. 
C) In both decision making sectors, there are scarcity constraints. 
D) Collective (political)outcomes and economic outcomes may differ.

Question 5

When government intervenes in the production process because external benefits exist, it typically attempts

Accepted Answer

A) to impose a tax on each unit produced. 
B) to shift the industry's demand curve to the left. 
C) to shift the industry's demand curve to the right. 
D) to shift the industry's supply curve to the left. 
A) to impose a tax on each unit produced. 
B) to shift the industry's demand curve to the left. 
C) to shift the industry's demand curve to the right. 
D) to shift the industry's supply curve to the left.

Question 6

Education in the United States is

Accepted Answer

A) subsidized mainly by state and local governments. 
B) funded by the federal government only. 
C) paid for by the parents of students in public school system. 
D) paid for by Social Security taxes. 
A) subsidized mainly by state and local governments. 
B) funded by the federal government only. 
C) paid for by the parents of students in public school system. 
D) paid for by Social Security taxes.

Question 7

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 8

A government-sponsored good is one that

Accepted Answer

A) everybody is willing to support with funding contributions. 
B) is inherently valuable. 
C) the political process has determined socially desirable. 
D) everybody will receive concrete benefits from. 
A) everybody is willing to support with funding contributions. 
B) is inherently valuable. 
C) the political process has determined socially desirable. 
D) everybody will receive concrete benefits from.

Question 9

Which of the following would be best classified as a private good?

Accepted Answer

A) A missile defense system 
B) Police force 
C) Radio frequency 
D) Clothing 
A) A missile defense system 
B) Police force 
C) Radio frequency 
D) Clothing

Question 10

Market failure occurs when

Accepted Answer

A) a good is too expensive for the market to provide. 
B) an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C) one good is superior to another and drives it out of the market. 
D) the stock market experiences a very large loss. 
A) a good is too expensive for the market to provide. 
B) an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C) one good is superior to another and drives it out of the market. 
D) the stock market experiences a very large loss.

Question 11

What is the assumption underlying public-choice theory?

Accepted Answer

A) Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B) The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C) Individuals act within the political process to improve their own individual well-being. 
D) Resources in the public sector are not scarce. 
A) Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B) The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C) Individuals act within the political process to improve their own individual well-being. 
D) Resources in the public sector are not scarce.

Question 12

Government goods are provided to the consumer at a zero price. This means that

Accepted Answer

A) the cost to society is zero. 
B) the political system is run by proportional rule. 
C) people are getting something for nothing. 
D) the cost of the goods is the value of the resources used to produce the good. 
A) the cost to society is zero. 
B) the political system is run by proportional rule. 
C) people are getting something for nothing. 
D) the cost of the goods is the value of the resources used to produce the good.

Question 13

A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account.
-Refer to the above figures. An external cost exists. This will lead to a(n)

Accepted Answer

A) underproduction equal to   minus   . 
B) overproduction equal to   minus   . 
C) underproduction equal to   minus   . 
D) overproduction equal to   minus   . 
A) underproduction equal to   minus   . 
B) overproduction equal to   minus   . 
C) underproduction equal to   minus   . 
D) overproduction equal to   minus   .

Question 14

Providing public goods is a(n)

Accepted Answer

A) economic function of government. 
B) political function of government. 
C) economic and political function of government. 
D) price system function. 
A) economic function of government. 
B) political function of government. 
C) economic and political function of government. 
D) price system function.

Question 15

According to your text, which of the following represents the largest component of federal spending?

Accepted Answer

A) Education 
B) Social Security 
C) Medicare 
D) National Defense 
A) Education 
B) Social Security 
C) Medicare 
D) National Defense

Question 16

-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 17

A characteristic of a public good is

Accepted Answer

A) rival consumption. 
B) the exclusion principle. 
C) the free-rider problem. 
D) clear property rights. 
A) rival consumption. 
B) the exclusion principle. 
C) the free-rider problem. 
D) clear property rights.

Question 18

The incentive structure is a

Accepted Answer

A) system of rewards and punishments that individuals consider when making decisions. 
B) system determined by the federal government that gives certain states more federal funds. 
C) system of infrastructure in the United States that improves commerce. 
D) system of checks and balances in the government. 
A) system of rewards and punishments that individuals consider when making decisions. 
B) system determined by the federal government that gives certain states more federal funds. 
C) system of infrastructure in the United States that improves commerce. 
D) system of checks and balances in the government.

Question 19

Graphically, the effects of an external cost can be shown as

Accepted Answer

A) a leftward shift of the market demand curve. 
B) a leftward shift of the market supply curve. 
C) a downward movement along the market demand curve. 
D) a rightward shift of the market supply curve. 
A) a leftward shift of the market demand curve. 
B) a leftward shift of the market supply curve. 
C) a downward movement along the market demand curve. 
D) a rightward shift of the market supply curve.

Question 20

A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $500,000 to build and serves 500 ships a month. If the shipping in the area increases so that 750 ships pass by a month, the increase in additional costs of providing the light to these new ships is

Accepted Answer

A) $500,000. 
B) $250,000. 
C) $250. 
D) $0. 
A) $500,000. 
B) $250,000. 
C) $250. 
D) $0.

Exam 5: Public Spending and Public Choice

A government action that can help correct positive externalities is

Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that

One way that the government encourages the production of a good with positive externalities is to offer

When comparing market and public sector decision making, which statement is NOT true?

When government intervenes in the production process because external benefits exist, it typically attempts

Education in the United States is

When there is an external benefit, the unregulated market

A government-sponsored good is one that

Which of the following would be best classified as a private good?

Market failure occurs when

What is the assumption underlying public-choice theory?

Government goods are provided to the consumer at a zero price. This means that

A shift from S1 to S2 reflects the change that happens when a negative externality is taken into account. A shift from D1 to D2 reflects the change that happens when a positive externality is taken into account. -Refer to the above figures. An external cost exists. This will lead to a(n)

Providing public goods is a(n)

According to your text, which of the following represents the largest component of federal spending?

-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 ________.

A characteristic of a public good is

The incentive structure is a

Graphically, the effects of an external cost can be shown as

A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $500,000 to build and serves 500 ships a month. If the shipping in the area increases so that 750 ships pass by a month, the increase in additional costs of providing the light to these new ships 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

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 .