Question 1

Which of the following terms describes the situation in which all resources are able to move to to highest-valued uses via voluntary exchange?

Accepted Answer

A)  government intervention 
B)  a market failure 
C)  economic efficiency 
D)  an externality 
A)  government intervention 
B)  a market failure 
C)  economic efficiency 
D)  an externality

Question 2

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 3

In the United States, the idea that the federal government should undertake actions to stabilize business activity

Accepted Answer

A)  was established in the Declaration of Independence. 
B)  is a relatively new idea that developed in the years during and after the Great Depression. 
C)  has been around since the early 1700s. 
D)  developed during World War I. 
A)  was established in the Declaration of Independence. 
B)  is a relatively new idea that developed in the years during and after the Great Depression. 
C)  has been around since the early 1700s. 
D)  developed during World War I.

Question 4

By definition, a government-sponsored good

Accepted Answer

A)  is a good that is deemed socially desirable. 
B)  is a good that should be available only to upper-income groups. 
C)  is always provided at a zero price. 
D)  does not affect society's general welfare. 
A)  is a good that is deemed socially desirable. 
B)  is a good that should be available only to upper-income groups. 
C)  is always provided at a zero price. 
D)  does not affect society's general welfare.

Question 5

List and explain the four key assumptions in the theory of public choice.

Accepted Answer

The key assumptions in the theory of pub

Question 6

A government action that can help correct positive externalities is

Accepted Answer

A)  a tax on producers of the good that provides external benefits. 
B)  a subsidy to consumers of the good that provides external benefits. 
C)  an effluent fee charged to producers of the good that provides external benefits. 
D)  regulations aimed at reduced production by sellers of the good that provides external benefits. 
A)  a tax on producers of the good that provides external benefits. 
B)  a subsidy to consumers of the good that provides external benefits. 
C)  an effluent fee charged to producers of the good that provides external benefits. 
D)  regulations aimed at reduced production by sellers of the good that provides external benefits.

Question 7

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

Accepted Answer

When the market fails to provide certain

Question 8

-A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

Accepted Answer

A)  The quantity of chemical solvents produced now will be the efficient amount. 
B)  Demand for the chemical solvents will increase. 
C)  Demand for the chemical solvents will decrease. 
D)  Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected. 
A)  The quantity of chemical solvents produced now will be the efficient amount. 
B)  Demand for the chemical solvents will increase. 
C)  Demand for the chemical solvents will decrease. 
D)  Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected.

Question 9

Which of the following functions of government gives property owners the incentive to use their property efficiently?

Accepted Answer

A)  making sure that courts are lenient on people who steal private property 
B)  the protection of property rights 
C)  the enforcement of antitrust legislation 
D)  the financing of public goods 
A)  making sure that courts are lenient on people who steal private property 
B)  the protection of property rights 
C)  the enforcement of antitrust legislation 
D)  the financing of public goods

Question 10

How does the government carry out income redistribution?

Accepted Answer

Income redistribution can be carried out

Question 11

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

Accepted Answer

A)  rationing systems. 
B)  antitrust laws. 
C)  the imposition of taxes on certain goods. 
D)  zoning laws. 
A)  rationing systems. 
B)  antitrust laws. 
C)  the imposition of taxes on certain goods. 
D)  zoning laws.

Question 12

A possible solution to the problems of external benefits is

Accepted Answer

A)  to tax those receiving the extra benefits. 
B)  production of the good by government. 
C)  effluent fees. 
D)  to restrict the amount of the good through direct government regulation. 
A)  to tax those receiving the extra benefits. 
B)  production of the good by government. 
C)  effluent fees. 
D)  to restrict the amount of the good through direct government regulation.

Question 13

The purpose of an effluent fee is to

Accepted Answer

A)  reduce the amount produced of a good and to raise the market price. 
B)  correct for pollution while keeping the price of the good the same as before the correction. 
C)  reward people producing externalities. 
D)  encourage producers to keep the quantity produced the same while lowering the price. 
A)  reduce the amount produced of a good and to raise the market price. 
B)  correct for pollution while keeping the price of the good the same as before the correction. 
C)  reward people producing externalities. 
D)  encourage producers to keep the quantity produced the same while lowering the price.

Question 14

All of the following generate positive externalities EXCEPT

Accepted Answer

A)  public health programs. 
B)  a lower marginal tax rate for a household's income. 
C)  requiring proof of inoculation before entering college. 
D)  requiring proof of inoculation before entering elementary school. 
A)  public health programs. 
B)  a lower marginal tax rate for a household's income. 
C)  requiring proof of inoculation before entering college. 
D)  requiring proof of inoculation before entering elementary school.

Question 15

Establishing rules for voter registration is an example of a(n)

Accepted Answer

A)  economic function of government. 
B)  political function of government. 
C)  public good. 
D)  transfer payment. 
A)  economic function of government. 
B)  political function of government. 
C)  public good. 
D)  transfer payment.

Question 16

Which event was most important in promoting the belief that the U.S. government should work to ensure economy-wide stability?

Accepted Answer

A)  World War II 
B)  the Civil Rights Movement 
C)  the California Gold Rush 
D)  the Great Depression 
A)  World War II 
B)  the Civil Rights Movement 
C)  the California Gold Rush 
D)  the Great Depression

Question 17

Government spending as a percent of national income

Accepted Answer

A)  peaked during the Reagan administration. 
B)  peaked during World War II. 
C)  has been steadily climbing since 1850. 
D)  has been almost constant this century. 
A)  peaked during the Reagan administration. 
B)  peaked during World War II. 
C)  has been steadily climbing since 1850. 
D)  has been almost constant this century.

Question 18

A fundamental reason that governments provide public goods is that

Accepted Answer

A)  those goods are subject to the free-rider problem. 
B)  negative externalities are part of the production process of those goods. 
C)  public goods are merit goods. 
D)  those goods are perfectly divisible. 
A)  those goods are subject to the free-rider problem. 
B)  negative externalities are part of the production process of those goods. 
C)  public goods are merit goods. 
D)  those goods are perfectly divisible.

Question 19

An example of third parties in the market of automobiles is

Accepted Answer

A)  a pedestrian that is affected by the polluted air from automobiles. 
B)  a seller of an automobile. 
C)  a buyer of an automobile. 
D)  None of the above belongs to third parties. 
A)  a pedestrian that is affected by the polluted air from automobiles. 
B)  a seller of an automobile. 
C)  a buyer of an automobile. 
D)  None of the above belongs to third parties.

Question 20

When an external cost exists in the production of a good, firms tend to

Accepted Answer

A)  under-produce the good since society pays these costs. 
B)  over-produce the good. 
C)  keep production constant throughout the year. 
D)  under-allocate resources to the production of the good. 
A)  under-produce the good since society pays these costs. 
B)  over-produce the good. 
C)  keep production constant throughout the year. 
D)  under-allocate resources to the production of the good.

Exam 5: Public Spending and Public Choice

Which of the following terms describes the situation in which all resources are able to move to to highest-valued uses via voluntary exchange?

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

In the United States, the idea that the federal government should undertake actions to stabilize business activity

By definition, a government-sponsored good

List and explain the four key assumptions in the theory of public choice.

A government action that can help correct positive externalities is

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

-A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?

Which of the following functions of government gives property owners the incentive to use their property efficiently?

How does the government carry out income redistribution?

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

A possible solution to the problems of external benefits is

The purpose of an effluent fee is to

All of the following generate positive externalities EXCEPT

Establishing rules for voter registration is an example of a(n)

Which event was most important in promoting the belief that the U.S. government should work to ensure economy-wide stability?

Government spending as a percent of national income

A fundamental reason that governments provide public goods is that

An example of third parties in the market of automobiles is

When an external cost exists in the production of a good, firms tend to

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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