Question 1

Many beach-goers leave plastic bottles on beaches instead of putting them in trash cans. This is an example of a

Accepted Answer

A)  public good. 
B)  positive externality. 
C)  neutral externality. 
D)  negative externality. 
A)  public good. 
B)  positive externality. 
C)  neutral externality. 
D)  negative externality.

Question 2

The purpose of an effluent fee imposed on a firm is

Accepted Answer

A)  to increase output of its product by increasing the resources allocated to production. 
B)  to increase output of its product by reducing the resources allocated to production. 
C)  to reduce output by increasing production costs thereby reducing resources used. 
D)  none of the above 
A)  to increase output of its product by increasing the resources allocated to production. 
B)  to increase output of its product by reducing the resources allocated to production. 
C)  to reduce output by increasing production costs thereby reducing resources used. 
D)  none of the above

Question 3

Many nations are consistently accused of enjoying the benefits of membership in the United Nations, yet they provide few or no funds to support the organization. This is an example of

Accepted Answer

A)  the principle of rival consumption. 
B)  the free-rider problem. 
C)  the negative externality problem. 
D)  the property rights problem. 
A)  the principle of rival consumption. 
B)  the free-rider problem. 
C)  the negative externality problem. 
D)  the property rights problem.

Question 4

Which of the following legal subjects is most concerned with the economic function of the legal system?

Accepted Answer

A)  criminal law 
B)  public goods 
C)  antitrust legislation 
D)  civil rights 
A)  criminal law 
B)  public goods 
C)  antitrust legislation 
D)  civil rights

Question 5

Which of the following might be a method that the government could use to promote the production of a good that generates positive externalities?

Accepted Answer

A)  subsidies 
B)  regulations 
C)  financing additional production 
D)  All of the above are correct. 
A)  subsidies 
B)  regulations 
C)  financing additional production 
D)  All of the above are correct.

Question 6

-According to the above figure, if steel mills are charged an effluent fee in order to bear the cost of pollution, what happens to the equilibrium price and equilibrium quantity?

Accepted Answer

A)  They are unchanged. 
B)  They change from P1 and Q1 to P2 and Q2. 
C)  They change from P2 and Q2 to P1 and Q1. 
D)  The equilibrium price increases from P1 and P2, but the equilibrium quantity is unchanged. 
A)  They are unchanged. 
B)  They change from P1 and Q1 to P2 and Q2. 
C)  They change from P2 and Q2 to P1 and Q1. 
D)  The equilibrium price increases from P1 and P2, but the equilibrium quantity is unchanged.

Question 7

What is one result of the Medicare subsidy?

Accepted Answer

A)  The health care industry is more efficient than it otherwise would be. 
B)  Patients may elect to have some treatments that are of low value to them but that are costly to provide. 
C)  The elderly population in the United States receives a lower quality of medical care than what is provided for the elderly population in other countries. 
D)  The number of physicians in the United States has declined. 
A)  The health care industry is more efficient than it otherwise would be. 
B)  Patients may elect to have some treatments that are of low value to them but that are costly to provide. 
C)  The elderly population in the United States receives a lower quality of medical care than what is provided for the elderly population in other countries. 
D)  The number of physicians in the United States has declined.

Question 8

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.

Question 9

According to the textbook, what are the two key political functions of government in a market economy?

Accepted Answer

The two functions of governmen

Question 10

Orchards provide services to beekeepers because the bees use the pollen to make honey. This is an example of

Accepted Answer

A)  a positive externality, and too many orchards exist in society. 
B)  a positive externality, and too few orchards exist in society. 
C)  a negative externality, and too many orchards exist in society. 
D)  a negative externality, and too few orchards exist in society. 
A)  a positive externality, and too many orchards exist in society. 
B)  a positive externality, and too few orchards exist in society. 
C)  a negative externality, and too many orchards exist in society. 
D)  a negative externality, and too few orchards exist in society.

Question 11

A government-inhibited good is one that

Accepted Answer

A)  cannot be individually consumed. 
B)  would be underproduced by the private market. 
C)  should be subsidized to correct the market failure and productive inefficiency. 
D)  has been deemed socially undesirable via the political process. 
A)  cannot be individually consumed. 
B)  would be underproduced by the private market. 
C)  should be subsidized to correct the market failure and productive inefficiency. 
D)  has been deemed socially undesirable via the political process.

Question 12

Which of the following does NOT describe the intended purpose of the antitrust laws of the United States?

Accepted Answer

A)  to promote competition within the economic system 
B)  to reduce the power of monopolies 
C)  to prohibit certain economic activities that promote trade 
D)  to restrict the formation of monopolies 
A)  to promote competition within the economic system 
B)  to reduce the power of monopolies 
C)  to prohibit certain economic activities that promote trade 
D)  to restrict the formation of monopolies

Question 13

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

Accepted Answer

A)  setting the price at P1. 
B)  establishing a tax of P3 - P1 per unit of the good sold. 
C)  establishing a tax of P3 - P2 per unit of the good sold. 
D)  setting the price at P4. 
A)  setting the price at P1. 
B)  establishing a tax of P3 - P1 per unit of the good sold. 
C)  establishing a tax of P3 - P2 per unit of the good sold. 
D)  setting the price at P4.

Question 14

Which of the following types of goods is subject to the free-rider problem?

Accepted Answer

A)  a private good 
B)  a public good 
C)  a product that creates a positive externality 
D)  a product that creates a negative externality 
A)  a private good 
B)  a public good 
C)  a product that creates a positive externality 
D)  a product that creates a negative externality

Question 15

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 16

A situation in which the market system allocates too few resources to the production of a given activity is known as

Accepted Answer

A)  market allocation. 
B)  market failure. 
C)  market efficiency. 
D)  market signaling. 
A)  market allocation. 
B)  market failure. 
C)  market efficiency. 
D)  market signaling.

Question 17

Which of the following is NOT an economic function of government?

Accepted Answer

A)  providing a legal system 
B)  ensuring economic stability 
C)  providing government-inhibited goods 
D)  promoting competition 
A)  providing a legal system 
B)  ensuring economic stability 
C)  providing government-inhibited goods 
D)  promoting competition

Question 18

An effluent fee is more effective when imposed on

Accepted Answer

A)  the firm or producer of the product which generates pollution. 
B)  the consumer of the product. 
C)  neither the producer nor the consumer of the product. 
D)  the supplier of the raw material used by the firm. 
A)  the firm or producer of the product which generates pollution. 
B)  the consumer of the product. 
C)  neither the producer nor the consumer of the product. 
D)  the supplier of the raw material used by the firm.

Question 19

The theory of public choice suggests that

Accepted Answer

A)  government agencies tend to be inefficient because the people running them do not understand the concept of opportunity cost. 
B)  government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient. 
C)  the goods provided by government, whether public or private goods, are not scarce. 
D)  you can lower your tax bill if you are careful not to consume too many government resources, regardless of what your neighbors do. 
A)  government agencies tend to be inefficient because the people running them do not understand the concept of opportunity cost. 
B)  government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient. 
C)  the goods provided by government, whether public or private goods, are not scarce. 
D)  you can lower your tax bill if you are careful not to consume too many government resources, regardless of what your neighbors do.

Question 20

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

Accepted Answer

A)  Social Security 
B)  unemployment benefits 
C)  welfare 
D)  interest payments on government bonds 
A)  Social Security 
B)  unemployment benefits 
C)  welfare 
D)  interest payments on government bonds

Exam 5: Public Spending and Public Choice

Many beach-goers leave plastic bottles on beaches instead of putting them in trash cans. This is an example of a

The purpose of an effluent fee imposed on a firm is

Many nations are consistently accused of enjoying the benefits of membership in the United Nations, yet they provide few or no funds to support the organization. This is an example of

Which of the following legal subjects is most concerned with the economic function of the legal system?

Which of the following might be a method that the government could use to promote the production of a good that generates positive externalities?

-According to the above figure, if steel mills are charged an effluent fee in order to bear the cost of pollution, what happens to the equilibrium price and equilibrium quantity?

What is one result of the Medicare subsidy?

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

According to the textbook, what are the two key political functions of government in a market economy?

Orchards provide services to beekeepers because the bees use the pollen to make honey. This is an example of

A government-inhibited good is one that

Which of the following does NOT describe the intended purpose of the antitrust laws of the United States?

-In the above figure, market equilibrium at point E yields the quantity X. The quantity X* is socially optimal amount. The government can achieve the optimal outcome by

Which of the following types of goods is subject to the free-rider problem?

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

A situation in which the market system allocates too few resources to the production of a given activity is known as

Which of the following is NOT an economic function of government?

An effluent fee is more effective when imposed on

The theory of public choice suggests that

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

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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