Question 1

To protect the competitive economic system by restricting the formation of monopolies, the government has passed and enforced

Accepted Answer

A) regulatory laws. 
B) antitrust laws. 
C) tort laws. 
D) zoning laws. 
A) regulatory laws. 
B) antitrust laws. 
C) tort laws. 
D) zoning laws.

Question 2

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 3

Pollution is caused by a market failure, in an industry in which there is

Accepted Answer

A) unemployment. 
B) an over-allocation of resources in production. 
C) excess demand. 
D) excessive cost borne by the firm. 
A) unemployment. 
B) an over-allocation of resources in production. 
C) excess demand. 
D) excessive cost borne by the firm.

Question 4

The government corrects for externalities in all of the following ways EXCEPT

Accepted Answer

A) taxes. 
B) regulation. 
C) lobbying. 
D) subsidies. 
A) taxes. 
B) regulation. 
C) lobbying. 
D) subsidies.

Question 5

What is market failure? How can the government correct market failure?

Accepted Answer

Market failure is a situation in which t

Question 6

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Accepted Answer

A) a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account. 
B) a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account. 
C) a market demand curve the same as the market demand curve for which the consumers take the external benefit into account. 
D) the absence of a market demand curve. 
A) a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account. 
B) a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account. 
C) a market demand curve the same as the market demand curve for which the consumers take the external benefit into account. 
D) the absence of a market demand curve.

Question 7

Which of the following could best be categorized as a public good?

Accepted Answer

A) an apartment in a public housing project 
B) a pumpkin pie 
C) public fireworks 
D) a race track 
A) an apartment in a public housing project 
B) a pumpkin pie 
C) public fireworks 
D) a race track

Question 8

What would happen in a free market system when production of a good generates negative externalities?

Accepted Answer

A) There is a shortage of the good. 
B) There is a surplus of the good. 
C) The equilibrium quantity of the good is less than the efficient amount. 
D) The equilibrium quantity of the good is more than the efficient amount. 
A) There is a shortage of the good. 
B) There is a surplus of the good. 
C) The equilibrium quantity of the good is less than the efficient amount. 
D) The equilibrium quantity of the good is more than the efficient amount.

Question 9

Which of the following is an example of a negative externality?

Accepted Answer

A) There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers. 
B) The opening of a new shopping mall increases the business of nearby restaurants. 
C) A consumer pays a higher price than another consumer does for the same product. 
D) Consumers pay a sales tax in addition to the price of a product. 
A) There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers. 
B) The opening of a new shopping mall increases the business of nearby restaurants. 
C) A consumer pays a higher price than another consumer does for the same product. 
D) Consumers pay a sales tax in addition to the price of a product.

Question 10

Inoculations of children against infectious diseases are

Accepted Answer

A) an example of an external benefit. 
B) an example of an external cost. 
C) dangerous for society. 
D) an example of a public good. 
A) an example of an external benefit. 
B) an example of an external cost. 
C) dangerous for society. 
D) an example of a public good.

Question 11

Social Security and Medicare are clear examples of

Accepted Answer

A) capitalism. 
B) market-determined services. 
C) market failures and externalities. 
D) governmental intervention in the market. 
A) capitalism. 
B) market-determined services. 
C) market failures and externalities. 
D) governmental intervention in the market.

Question 12

An effluent fee

Accepted Answer

A) is a reward to companies using production methods that create positive externalities. 
B) is also called a pollution subsidy. 
C) gives a firm the right to pollute if it pays a tax on what it discharges. 
D) is intended to influence the market by increasing supply and decreasing price. 
A) is a reward to companies using production methods that create positive externalities. 
B) is also called a pollution subsidy. 
C) gives a firm the right to pollute if it pays a tax on what it discharges. 
D) is intended to influence the market by increasing supply and decreasing price.

Question 13

Which of the following is an example of a negative externality?

Accepted Answer

A) A person buys a car that is a lemon 
B) A worker is injured on the job 
C) A new restaurant's success causes another to go out of business 
D) A new hotel ruins the view of the ocean for a few homeowners 
A) A person buys a car that is a lemon 
B) A worker is injured on the job 
C) A new restaurant's success causes another to go out of business 
D) A new hotel ruins the view of the ocean for a few homeowners

Question 14

When a person throws a cigarette out of a car window and starts a brush fire, this is

Accepted Answer

A) an example of an external benefit. 
B) an example of an external cost. 
C) an example of a public good. 
D) an example of market power. 
A) an example of an external benefit. 
B) an example of an external cost. 
C) an example of a public good. 
D) an example of market power.

Question 15

A firm that has a great deal of control over the price of a good is said

Accepted Answer

A) to function in a black market. 
B) to create a tax incidence. 
C) to have monopoly power. 
D) to be in an antitrust position. 
A) to function in a black market. 
B) to create a tax incidence. 
C) to have monopoly power. 
D) to be in an antitrust position.

Question 16

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 17

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

Accepted Answer

A) less than the price that producers receive for providing care. 
B) greater than the price that producers receive for providing care. 
C) greater than the market clearing price without the subsidy. 
D) equal to zero. 
A) less than the price that producers receive for providing care. 
B) greater than the price that producers receive for providing care. 
C) greater than the market clearing price without the subsidy. 
D) equal to zero.

Question 18

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

Accepted Answer

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

Question 19

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

Accepted Answer

A) The good is priced too low. 
B) An external benefit is associated with good X. 
C) Resources are over-allocated in the production of good X. 
D) Too much of good X is being produced. 
A) The good is priced too low. 
B) An external benefit is associated with good X. 
C) Resources are over-allocated in the production of good X. 
D) Too much of good X is being produced.

Question 20

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.

Exam 5: Public Spending and Public Choice

To protect the competitive economic system by restricting the formation of monopolies, the government has passed and enforced

One characteristic of a public good is that it

Pollution is caused by a market failure, in an industry in which there is

The government corrects for externalities in all of the following ways EXCEPT

What is market failure? How can the government correct market failure?

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Which of the following could best be categorized as a public good?

What would happen in a free market system when production of a good generates negative externalities?

Which of the following is an example of a negative externality?

Inoculations of children against infectious diseases are

Social Security and Medicare are clear examples of

An effluent fee

Which of the following is an example of a negative externality?

When a person throws a cigarette out of a car window and starts a brush fire, this is

A firm that has a great deal of control over the price of a good is said

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)

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

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

Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

One reason the Medicare system costs so much 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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