Question 1

Subsidies paid to the health care industry for Medicare patients are paid by

Accepted Answer

A) Congress. 
B) the Teamsters union. 
C) current taxes. 
D) the Federal Reserve. 
A) Congress. 
B) the Teamsters union. 
C) current taxes. 
D) the Federal Reserve. C

Question 2

Over the past 40 years,there has been an increase in spending on public education without a significant increase in student performance.One explanation given by economists on why student performance has not improved is that

Accepted Answer

A) not enough funds have been spent on public education. 
B) schools are providing high-priced services that are not valued by parents. 
C) the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D) too much competition for educational services. 
A) not enough funds have been spent on public education. 
B) schools are providing high-priced services that are not valued by parents. 
C) the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D) too much competition for educational services. B

Question 3

Market failure occurs when

Accepted Answer

A) the price system fails to generate an efficient allocation of resources. 
B) the price system fails to generate an equal distribution of income. 
C) the price system fails to generate an equal distribution of wealth. 
D) the price system allows consumers to make their own decisions. 
A) the price system fails to generate an efficient allocation of resources. 
B) the price system fails to generate an equal distribution of income. 
C) the price system fails to generate an equal distribution of wealth. 
D) the price system allows consumers to make their own decisions. A

Question 4

If public subsidies for education were eliminated,what would you expect as an outcome in the market for educational services?

Accepted Answer

A) More students would enroll in school. 
B) The price students pay to attend school would equal the value of an additional unit of education consumed. 
C) There would be no correlation between the price students pay and the cost of providing the educational services. 
D) The quality of education would deteriorate. 
A) More students would enroll in school. 
B) The price students pay to attend school would equal the value of an additional unit of education consumed. 
C) There would be no correlation between the price students pay and the cost of providing the educational services. 
D) The quality of education would deteriorate.

Question 5

In its most ideal form,a price system allows

Accepted Answer

A) firms to act in such a way that they eliminate scarcity. 
B) consumers to satisfy all their wants. 
C) resources to move from lower-valued uses to higher-valued uses through voluntary exchange. 
D) government policy makers to allocate resources to the uses which they consider to be in the best interests of society. 
A) firms to act in such a way that they eliminate scarcity. 
B) consumers to satisfy all their wants. 
C) resources to move from lower-valued uses to higher-valued uses through voluntary exchange. 
D) government policy makers to allocate resources to the uses which they consider to be in the best interests of society.

Question 6

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 7

Which of the following is NOT an example of an externality?

Accepted Answer

A) A bread company emits a wonderful aroma in the air that makes people smile. 
B) The neighbor's wind chimes interfere with your sleep. 
C) A firm fires 500 people. 
D) Cancer-causing chemicals are dumped into the drinking water supply of a city. 
A) A bread company emits a wonderful aroma in the air that makes people smile. 
B) The neighbor's wind chimes interfere with your sleep. 
C) A firm fires 500 people. 
D) Cancer-causing chemicals are dumped into the drinking water supply of a city.

Question 8

The legal system provided by the government is necessary for the smooth working of markets because

Accepted Answer

A) it keeps criminals off of the streets. 
B) it defines and protects property rights. 
C) it is set up in the U.S.constitution. 
D) it ensures that producers maximize their profits. 
A) it keeps criminals off of the streets. 
B) it defines and protects property rights. 
C) it is set up in the U.S.constitution. 
D) it ensures that producers maximize their profits.

Question 9

A government-inhibited good is a good which

Accepted Answer

A) is not subject to the principle of mutual exclusivity. 
B) the political process has deemed socially undesirable. 
C) can be consumed by one individual without affecting the consumption of another individual. 
D) the political process has deemed socially desirable. 
A) is not subject to the principle of mutual exclusivity. 
B) the political process has deemed socially undesirable. 
C) can be consumed by one individual without affecting the consumption of another individual. 
D) the political process has deemed socially desirable.

Question 10

Which of the following is a major reason why the Medicare program is in such financial trouble?

Accepted Answer

A) Workers are not paying enough into the program. 
B) The government set reimbursement rates too high. 
C) Because medical services are subsidized by the government,both consumption by the elderly and the cost of services have increased. 
D) There is a shortage of medical school applicants. 
A) Workers are not paying enough into the program. 
B) The government set reimbursement rates too high. 
C) Because medical services are subsidized by the government,both consumption by the elderly and the cost of services have increased. 
D) There is a shortage of medical school applicants.

Question 11

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 12

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 13

Briefly explain why government subsidies are a reason for the declining student performance in public education.

Accepted Answer

This is due to the incentive problems of

Question 14

When market failures occur,

Accepted Answer

A) the invisible had will correct for the market failures. 
B) the price system will correct the market failures. 
C) people will reduce their consumption. 
D) the government can step in to correct the market failure. 
A) the invisible had will correct for the market failures. 
B) the price system will correct the market failures. 
C) people will reduce their consumption. 
D) the government can step in to correct the market failure.

Question 15

Which of the following statements is true about the difference between a public and private good?

Accepted Answer

A) Both public and private goods are owned by individuals but public goods can be shared while private goods cannot be shared. 
B) The government produces private goods while corporations produce public goods. 
C) Consumption of a private good by one person reduces the amount available for others while the consumption of a public good does not reduce the amount available for others. 
D) Resources are used to produce private goods but are not used to produce public goods. 
A) Both public and private goods are owned by individuals but public goods can be shared while private goods cannot be shared. 
B) The government produces private goods while corporations produce public goods. 
C) Consumption of a private good by one person reduces the amount available for others while the consumption of a public good does not reduce the amount available for others. 
D) Resources are used to produce private goods but are not used to produce public goods.

Question 16

Explain why an external cost leads to an over-allocation of resources to the production of a good.

Accepted Answer

An external cost is the cost associated

Question 17

What are the voting rules followed by the political system as opposed to the market system?

Accepted Answer

In the political system,one person gets

Question 18

Medicare is an example of a third-party payment for medical services that

Accepted Answer

A) causes providers to supply less of medical services than they would without the payment. 
B) causes buyers to consume more of medical services than they would without the payment. 
C) does not cause any change in the equilibrium position for medical services which existed without the subsidy. 
D) causes the price of medical services to rise for the consumer once the payment is provided. 
A) causes providers to supply less of medical services than they would without the payment. 
B) causes buyers to consume more of medical services than they would without the payment. 
C) does not cause any change in the equilibrium position for medical services which existed without the subsidy. 
D) causes the price of medical services to rise for the consumer once the payment is provided.

Question 19

Which of the following is a transfer payment?
I.Social Security
II.Unemployment benefits

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

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 4: Public Spending and Public Choice

Subsidies paid to the health care industry for Medicare patients are paid by

Over the past 40 years,there has been an increase in spending on public education without a significant increase in student performance.One explanation given by economists on why student performance has not improved is that

Market failure occurs when

If public subsidies for education were eliminated,what would you expect as an outcome in the market for educational services?

In its most ideal form,a price system allows

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

Which of the following is NOT an example of an externality?

The legal system provided by the government is necessary for the smooth working of markets because

A government-inhibited good is a good which

Which of the following is a major reason why the Medicare program is in such financial trouble?

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

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

Briefly explain why government subsidies are a reason for the declining student performance in public education.

When market failures occur,

Which of the following statements is true about the difference between a public and private good?

Explain why an external cost leads to an over-allocation of resources to the production of a good.

What are the voting rules followed by the political system as opposed to the market system?

Medicare is an example of a third-party payment for medical services that

Which of the following is a transfer payment? I.Social Security II.Unemployment benefits

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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