Question 1

Which of the following is the best example of a public good?

Accepted Answer

A)  inoculation against a contagious disease 
B)  a streetlight 
C)  garbage collection 
D)  Internet access 
A)  inoculation against a contagious disease 
B)  a streetlight 
C)  garbage collection 
D)  Internet access B

Question 2

When positive 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. C

Question 3

Briefly explain the similarities and differences of decision making by the market sector and the public sector.

Accepted Answer

The similarities of the two sectors include the presence of opportunity costs, competition by serving individual interests, and an incentive structure. The main differences between decisions by the two sectors are that the public sector often makes decisions on goods at zero price, by use of force, and by a majority voting system instead of "dollar votes."

Question 4

In the United States, which of the following is an example of a government-inhibited good?

Accepted Answer

A)  museums 
B)  movies 
C)  cocaine 
D)  sports stadiums 
A)  museums 
B)  movies 
C)  cocaine 
D)  sports stadiums

Question 5

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.

Question 6

Social Security and Medicare are examples of

Accepted Answer

A)  capitalism. 
B)  free market functions. 
C)  market failures. 
D)  governmental interventions. 
A)  capitalism. 
B)  free market functions. 
C)  market failures. 
D)  governmental interventions.

Question 7

What are the key characteristics of a public good?

Accepted Answer

A public good is not subject to the prin

Question 8

If U.S. consumers increase their spending on electric cars by 100 percent, and 100 percent more electric 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 9

-Which of the following statements about public education is TRUE?

Accepted Answer

A)  Over the last 40 years, there has been an increase in spending for public education, while there has not been a significant increase in performance. 
B)  Over the last 40 years, there has been a decrease in public spending for public education, while there has not been a significant increase in performance. 
C)  Most of the increases in public spending on public education have gone into programs that have increased student learning. 
D)  Over the last 40 years there has been no decline in any of the measures of student performance in public education. 
A)  Over the last 40 years, there has been an increase in spending for public education, while there has not been a significant increase in performance. 
B)  Over the last 40 years, there has been a decrease in public spending for public education, while there has not been a significant increase in performance. 
C)  Most of the increases in public spending on public education have gone into programs that have increased student learning. 
D)  Over the last 40 years there has been no decline in any of the measures of student performance in public education.

Question 10

The goal of Medicare is to

Accepted Answer

A)  help the poor and indigent pay their hospital bills. 
B)  prevent poverty in urban cities. 
C)  subsidize medical expenses for the elderly. 
D)  subsidize costs incurred by doctors. 
A)  help the poor and indigent pay their hospital bills. 
B)  prevent poverty in urban cities. 
C)  subsidize medical expenses for the elderly. 
D)  subsidize costs incurred by doctors.

Question 11

When does the free-rider problem arise?

Accepted Answer

A)  when someone who benefits from a good does not have to contribute to paying for it 
B)  when a firm does not have to advertise, because its customers recommend the product to their friends 
C)  when policymakers ignore opportunity costs in making decisions 
D)  when production of a good generates pollution 
A)  when someone who benefits from a good does not have to contribute to paying for it 
B)  when a firm does not have to advertise, because its customers recommend the product to their friends 
C)  when policymakers ignore opportunity costs in making decisions 
D)  when production of a good generates pollution

Question 12

Use the concept of supply and demand to explain why an increase in Medicare subsidies can lead to an increase in health care spending by the government.

Accepted Answer

Medicare reduces the price that the elde

Question 13

How does a government-sponsored good differ from a public good?

Accepted Answer

A public good is characterized by the fa

Question 14

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. Externalities exist in both panels. After correcting for the externalities the prices should be

Accepted Answer

A)  P1 and P3. 
B)  P1 and P4. 
C)  P2 and P4. 
D)  P2 and P3. 
A)  P1 and P3. 
B)  P1 and P4. 
C)  P2 and P4. 
D)  P2 and P3.

Question 15

Federal antitrust laws in the United States are enforced

Accepted Answer

A)  solely by the Federal Trade Commission. 
B)  solely by the Department of Justice. 
C)  by the Department of Justice and by the Federal Trade Commission. 
D)  by the Department of Commerce. 
A)  solely by the Federal Trade Commission. 
B)  solely by the Department of Justice. 
C)  by the Department of Justice and by the Federal Trade Commission. 
D)  by the Department of Commerce.

Question 16

The U.S. legal system mainly engages in activities that

Accepted Answer

A)  are dedicated to producing private goods. 
B)  focus on income redistribution. 
C)  involve defining and protecting property rights. 
D)  focus on producing public goods. 
A)  are dedicated to producing private goods. 
B)  focus on income redistribution. 
C)  involve defining and protecting property rights. 
D)  focus on producing public goods.

Question 17

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 18

The major economic effect of Medicare subsidies is

Accepted Answer

A)  that the number of physicians has decreased since compensation is low. 
B)  to increase the price of medical services and reduce the quantity demanded. 
C)  to increase the price of medical services and increase the quantity demanded. 
D)  to lower the price of medical services and reduce the quantity demanded. 
A)  that the number of physicians has decreased since compensation is low. 
B)  to increase the price of medical services and reduce the quantity demanded. 
C)  to increase the price of medical services and increase the quantity demanded. 
D)  to lower the price of medical services and reduce the quantity demanded.

Question 19

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. A negative externality existed but has been corrected. Price and quantity will be

Accepted Answer

A)  P1 and Q1. 
B)  P2 and Q2. 
C)  P3 and Q3. 
D)  P4 and Q4. 
A)  P1 and Q1. 
B)  P2 and Q2. 
C)  P3 and Q3. 
D)  P4 and Q4.

Question 20

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.

Exam 5: Public Spending and Public Choice

Which of the following is the best example of a public good?

When positive externalities exist, the private market equilibrium represents a

Briefly explain the similarities and differences of decision making by the market sector and the public sector.

In the United States, which of the following is an example of a government-inhibited good?

To an economist, a free rider is a person who

Social Security and Medicare are examples of

What are the key characteristics of a public good?

If U.S. consumers increase their spending on electric cars by 100 percent, and 100 percent more electric cars are produced, this is known as the

-Which of the following statements about public education is TRUE?

The goal of Medicare is to

When does the free-rider problem arise?

Use the concept of supply and demand to explain why an increase in Medicare subsidies can lead to an increase in health care spending by the government.

How does a government-sponsored good differ from a public good?

Federal antitrust laws in the United States are enforced

The U.S. legal system mainly engages in activities that

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

The major economic effect of Medicare subsidies is

The distinguishing characteristic of a public good 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

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

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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