Question 1

Which of the following is TRUE about the political and market systems of voting?

Accepted Answer

A)  The political voting system functions according to proportional rule, while the market voting system functions according to majority rule. 
B)  The political voting system functions according to majority rule, while the market voting system functions according to proportional rule. 
C)  The political voting system functions according to minority rule, while the market voting system functions according to majority rule. 
D)  The political system and the market system are identical. 
A)  The political voting system functions according to proportional rule, while the market voting system functions according to majority rule. 
B)  The political voting system functions according to majority rule, while the market voting system functions according to proportional rule. 
C)  The political voting system functions according to minority rule, while the market voting system functions according to majority rule. 
D)  The political system and the market system are identical.

Question 2

Federal antitrust laws in the United States are intended to

Accepted Answer

A)  promote competition by prohibiting monopolies. 
B)  promote income equality. 
C)  create new monopolies. 
D)  create only government-owned organizations. 
A)  promote competition by prohibiting monopolies. 
B)  promote income equality. 
C)  create new monopolies. 
D)  create only government-owned organizations.

Question 3

Public goods face the

Accepted Answer

A)  principle of rival consumption. 
B)  free-rider problem. 
C)  law of overproduction. 
D)  exclusion principle. 
A)  principle of rival consumption. 
B)  free-rider problem. 
C)  law of overproduction. 
D)  exclusion principle.

Question 4

-Refer to the above figure. An external cost exists. The amount of that cost is represented by

Accepted Answer

A)  P2. 
B)  Q1. 
C)  the vertical distance between point A and the supply curve S1. 
D)  the distance between C and A. 
A)  P2. 
B)  Q1. 
C)  the vertical distance between point A and the supply curve S1. 
D)  the distance between C and A.

Question 5

The theory of public choice deals primarily with

Accepted Answer

A)  collective decision making. 
B)  individual decisions in a free market. 
C)  government actions that do not reflect the preferences of consumers. 
D)  how government regulations affect the decisions of individual consumers. 
A)  collective decision making. 
B)  individual decisions in a free market. 
C)  government actions that do not reflect the preferences of consumers. 
D)  how government regulations affect the decisions of individual consumers.

Question 6

Which of the following would be classified as a public good?

Accepted Answer

A)  state lotteries 
B)  telephone service 
C)  Internet service subscription 
D)  police protection 
A)  state lotteries 
B)  telephone service 
C)  Internet service subscription 
D)  police protection

Question 7

Which of the following would be considered an economic function of government?

Accepted Answer

A)  providing a legal system 
B)  promoting competition 
C)  providing public goods 
D)  All of the above are correct. 
A)  providing a legal system 
B)  promoting competition 
C)  providing public goods 
D)  All of the above are correct.

Question 8

"Second-hand" smoke is an often cited disadvantage of allowing smoking in restaurants. In economics, "second-hand" smoke is referred to as a(n)

Accepted Answer

A)  capital good. 
B)  externality. 
C)  economic cost. 
D)  negative investment. 
A)  capital good. 
B)  externality. 
C)  economic cost. 
D)  negative investment.

Question 9

Which of the following is NOT an economic function of the U.S. government?

Accepted Answer

A)  promoting competition 
B)  providing public goods 
C)  promoting price stability 
D)  encouraging production of government-inhibited goods 
A)  promoting competition 
B)  providing public goods 
C)  promoting price stability 
D)  encouraging production of government-inhibited goods

Question 10

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 positive externality exists that has not 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 11

Providing public goods is a(n)

Accepted Answer

A)  economic function of government. 
B)  political function of government. 
C)  economic and political function of government. 
D)  price system function. 
A)  economic function of government. 
B)  political function of government. 
C)  economic and political function of government. 
D)  price system function.

Question 12

One way of addressing the associated market failure that generates both private costs and external costs is for this activity to be

Accepted Answer

A)  left alone. 
B)  taxed. 
C)  subsidized. 
D)  banned. 
A)  left alone. 
B)  taxed. 
C)  subsidized. 
D)  banned.

Question 13

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

Accepted Answer

A)  Amtrak rail transport services 
B)  services of the U.S. Post Office 
C)  the provision of medical care 
D)  the provision of national defense 
A)  Amtrak rail transport services 
B)  services of the U.S. Post Office 
C)  the provision of medical care 
D)  the provision of national defense

Question 14

Explain why an external benefit leads to an under-allocation of resources to the production of a good.

Accepted Answer

An external benefit is the benefit assoc

Question 15

A political function of government is to

Accepted Answer

A)  encourage the consumption of government-sponsored goods. 
B)  provide public goods. 
C)  correct for externalities. 
D)  encourage the workings of the price system. 
A)  encourage the consumption of government-sponsored goods. 
B)  provide public goods. 
C)  correct for externalities. 
D)  encourage the workings of the price system.

Question 16

The opportunity cost of providing a public good to an additional individual is

Accepted Answer

A)  infinite. 
B)  zero. 
C)  impossible to determine. 
D)  high because of the exclusion principle. 
A)  infinite. 
B)  zero. 
C)  impossible to determine. 
D)  high because of the exclusion principle.

Question 17

When there is an external cost, the unregulated market

Accepted Answer

A)  overproduces the good or service. 
B)  underproduces the good or service. 
C)  reaches the most efficient solution. 
D)  minimizes public welfare. 
A)  overproduces the good or service. 
B)  underproduces the good or service. 
C)  reaches the most efficient solution. 
D)  minimizes public welfare.

Question 18

If a nation's government determines that consumption of cigarettes should be discouraged, then this means that the government has judged cigarettes to be a(n)

Accepted Answer

A)  government-sponsored good. 
B)  exclusive good. 
C)  government-inhibited good. 
D)  public good. 
A)  government-sponsored good. 
B)  exclusive good. 
C)  government-inhibited good. 
D)  public good.

Question 19

An externality is

Accepted Answer

A)  a third-party benefit or cost that is associated with the production of a good. 
B)  when external forces such as war or flood affect the market. 
C)  government intervention in the markets. 
D)  transaction costs. 
A)  a third-party benefit or cost that is associated with the production of a good. 
B)  when external forces such as war or flood affect the market. 
C)  government intervention in the markets. 
D)  transaction costs.

Question 20

Positive externalities arise when

Accepted Answer

A)  an unprofitable firm is shut down. 
B)  a profitable firm is regulated. 
C)  tax rates are reduced. 
D)  production of a good generates benefits that spill over to third parties. 
A)  an unprofitable firm is shut down. 
B)  a profitable firm is regulated. 
C)  tax rates are reduced. 
D)  production of a good generates benefits that spill over to third parties.

Exam 5: Public Spending and Public Choice

Which of the following is TRUE about the political and market systems of voting?

Federal antitrust laws in the United States are intended to

Public goods face the

-Refer to the above figure. An external cost exists. The amount of that cost is represented by

The theory of public choice deals primarily with

Which of the following would be classified as a public good?

Which of the following would be considered an economic function of government?

"Second-hand" smoke is an often cited disadvantage of allowing smoking in restaurants. In economics, "second-hand" smoke is referred to as a(n)

Which of the following is NOT an economic function of the U.S. government?

Providing public goods is a(n)

One way of addressing the associated market failure that generates both private costs and external costs is for this activity to be

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

Explain why an external benefit leads to an under-allocation of resources to the production of a good.

A political function of government is to

The opportunity cost of providing a public good to an additional individual is

When there is an external cost, the unregulated market

If a nation's government determines that consumption of cigarettes should be discouraged, then this means that the government has judged cigarettes to be a(n)

An externality is

Positive externalities arise when

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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