Question 1

-Refer to above figure in which negative externality existed. The government imposes a $1.00 pollution tax on the producer. Supply shifts leftward.

Accepted Answer

A) This tax will be shifted entirely to the consumer. 
B) This tax will be borne entirely by the producer. 
C) The amount of the tax shifted to the consumer depends on the consumer's reaction. 
D) The tax will be divided into equal amounts between consumer and producer. 
A) This tax will be shifted entirely to the consumer. 
B) This tax will be borne entirely by the producer. 
C) The amount of the tax shifted to the consumer depends on the consumer's reaction. 
D) The tax will be divided into equal amounts between consumer and producer.

Question 2

-Costs that spill over to third parties are called

Accepted Answer

A) opportunity costs. 
B) external costs. 
C) variable costs. 
D) public costs. 
A) opportunity costs. 
B) external costs. 
C) variable costs. 
D) public costs.

Question 3

Which of the following is NOT an example of a transfer payment?

Accepted Answer

A) unemployment compensation 
B) food stamps 
C) government salaries 
D) Social Security benefits 
A) unemployment compensation 
B) food stamps 
C) government salaries 
D) Social Security benefits

Question 4

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

Accepted Answer

A) the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B) the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price. 
A) the per-unit subsidy provided to producers of that service times the quantity of the service demanded by consumers at a below-equilibrium out-of-pocket price of the service. 
B) the per-unit subsidy provided to producers of that service times the equilibrium quantity of the service demanded at the market clearing price that would arise in the absence of Medicare. 
C) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service provided by producers at that out-of-pocket price. 
D) the below-equilibrium, out-of-pocket price that consumers pay for the service times the quantity of the service demanded by consumers at that out-of-pocket price.

Question 5

U.S. antitrust laws view monopolies as undesirable because

Accepted Answer

A) monopolies restrain trade and promote inefficiencies. 
B) monopolies create inferior products. 
C) monopolies produce only capital goods. 
D) monopolies produce only cheap, low quality goods. 
A) monopolies restrain trade and promote inefficiencies. 
B) monopolies create inferior products. 
C) monopolies produce only capital goods. 
D) monopolies produce only cheap, low quality goods.

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

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

Accepted Answer

A) majority rule. 
B) proportional rule. 
C) government rule. 
D) profit rule. 
A) majority rule. 
B) proportional rule. 
C) government rule. 
D) profit rule.

Question 8

Market failures include all of the following EXCEPT

Accepted Answer

A) equalization of quantity supplied and quantity demanded 
B) public goods 
C) positive externalities 
D) negative externalities 
A) equalization of quantity supplied and quantity demanded 
B) public goods 
C) positive externalities 
D) negative externalities

Question 9

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 10

A subsidy is sometimes used by government to correct the problems associated with

Accepted Answer

A) negative externalities. 
B) positive externalities. 
C) internal benefits. 
D) external benefits. 
A) negative externalities. 
B) positive externalities. 
C) internal benefits. 
D) external benefits.

Question 11

Safe Bank has an outside display which has the time and temperature that is always correct. This is an example of

Accepted Answer

A) an interference in the workings of the price system. 
B) a breakdown in communication between the bank and its customers. 
C) a negative externality. 
D) a positive externality. 
A) an interference in the workings of the price system. 
B) a breakdown in communication between the bank and its customers. 
C) a negative externality. 
D) a positive externality.

Question 12

An example of a market failure is

Accepted Answer

A) a firm is dumping toxic waste that is making people sick. 
B) when not everyone who wants to see a major league football game can. 
C) when there is an increase in demand and a shortage develops. 
D) unemployment. 
A) a firm is dumping toxic waste that is making people sick. 
B) when not everyone who wants to see a major league football game can. 
C) when there is an increase in demand and a shortage develops. 
D) unemployment.

Question 13

What is an externality? How do positive and negative externalities differ in their effects? How can government action correct positive and negative externalities?

Accepted Answer

An externality is a cost or benefit of a

Question 14

Market failures occur when

Accepted Answer

A) externalities exist. 
B) wages increase. 
C) there is an increase in demand. 
D) there is a change in quantity demanded. 
A) externalities exist. 
B) wages increase. 
C) there is an increase in demand. 
D) there is a change in quantity demanded.

Question 15

Which of the following is NOT a consequence of the introduction of the Medicare program?

Accepted Answer

A) an increased quantity of medical services demanded 
B) an increased ability for the elderly to obtain medical services 
C) an increased ability for the poor to obtain medical services 
D) a reduced demand for medical services 
A) an increased quantity of medical services demanded 
B) an increased ability for the elderly to obtain medical services 
C) an increased ability for the poor to obtain medical services 
D) a reduced demand for medical services

Question 16

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.

Question 17

The distinguishing characteristic of a public good is

Accepted Answer

A) noncompetitive production. 
B) durability. 
C) exclusivity. 
D) nonrival consumption. 
A) noncompetitive production. 
B) durability. 
C) exclusivity. 
D) nonrival consumption.

Question 18

Which law specifically mandated the federal government's responsibility for economy-wide stability?

Accepted Answer

A) The Employment Act of 1946 
B) The Sherman Act of 1890 
C) The Great Depression Act of 1930 
D) The Miller Act of 1960 
A) The Employment Act of 1946 
B) The Sherman Act of 1890 
C) The Great Depression Act of 1930 
D) The Miller Act of 1960

Question 19

An externality exists when

Accepted Answer

A) goods are sold in specific geographic locations. 
B) some of the benefits or costs associated with a good are borne by third parties. 
C) the government taxes a good. 
D) the government subsidizes a good. 
A) goods are sold in specific geographic locations. 
B) some of the benefits or costs associated with a good are borne by third parties. 
C) the government taxes a good. 
D) the government subsidizes a good.

Question 20

To an economist, a free rider is a person who

Accepted Answer

A) uses private goods without paying for them. 
B) benefits from consuming public goods without paying for them. 
C) consumes demerit goods. 
D) uses the public transportation system without paying for it. 
A) uses private goods without paying for them. 
B) benefits from consuming public goods without paying for them. 
C) consumes demerit goods. 
D) uses the public transportation system without paying for it.

Exam 5: Public Spending and Public Choice

-Refer to above figure in which negative externality existed. The government imposes a $1.00 pollution tax on the producer. Supply shifts leftward.

-Costs that spill over to third parties are called

Which of the following is NOT an example of a transfer payment?

The total amount that the U.S. government spends to support a covered type of health care service under the Medicare system equals

U.S. antitrust laws view monopolies as undesirable because

Examples of transfer payments are

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

Market failures include all of the following EXCEPT

The U.S. antitrust laws

A subsidy is sometimes used by government to correct the problems associated with

Safe Bank has an outside display which has the time and temperature that is always correct. This is an example of

An example of a market failure is

What is an externality? How do positive and negative externalities differ in their effects? How can government action correct positive and negative externalities?

Market failures occur when

Which of the following is NOT a consequence of the introduction of the Medicare program?

Private goods are those goods

The distinguishing characteristic of a public good is

Which law specifically mandated the federal government's responsibility for economy-wide stability?

An externality exists when

To an economist, a free rider is a person who

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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