Question 1

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 2

An example of a transfer payment is

Accepted Answer

A)  the President's salary. 
B)  unemployment insurance benefits. 
C)  a payment to a defense contractor. 
D)  court costs paid by the defendants in a law suit. 
A)  the President's salary. 
B)  unemployment insurance benefits. 
C)  a payment to a defense contractor. 
D)  court costs paid by the defendants in a law suit.

Question 3

-The funding of public education is

Accepted Answer

A)  a private program. 
B)  a subsidy program. 
C)  done by voluntary contributions. 
D)  provided by Social Security. 
A)  a private program. 
B)  a subsidy program. 
C)  done by voluntary contributions. 
D)  provided by Social Security.

Question 4

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

Accepted Answer

A)  wireless networks 
B)  community college education 
C)  cigarettes 
D)  marijuana 
A)  wireless networks 
B)  community college education 
C)  cigarettes 
D)  marijuana

Question 5

A government subsidy is typically used

Accepted Answer

A)  to correct a negative externality. 
B)  to provide a government-inhibited good. 
C)  to reduce inflation. 
D)  to correct a positive externality. 
A)  to correct a negative externality. 
B)  to provide a government-inhibited good. 
C)  to reduce inflation. 
D)  to correct a positive externality.

Question 6

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The quantity demanded of medical services is

Accepted Answer

A)  QM. 
B)  Q0. 
C)  Qd. 
D)  undetermined without more information. 
A)  QM. 
B)  Q0. 
C)  Qd. 
D)  undetermined without more information.

Question 7

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 8

Medicare subsidies will cause people to

Accepted Answer

A)  perceive the price they pay per unit of medical services to be lower than the price received by the provider. 
B)  perceive the price they pay per unit of medical services to be higher than the price received by the provider. 
C)  perceive the price they pay per unit of medical services to be exactly equal to the price received by the provider. 
D)  demand fewer services. 
A)  perceive the price they pay per unit of medical services to be lower than the price received by the provider. 
B)  perceive the price they pay per unit of medical services to be higher than the price received by the provider. 
C)  perceive the price they pay per unit of medical services to be exactly equal to the price received by the provider. 
D)  demand fewer services.

Question 9

Explain why economists consider it to be one of the economic functions of government to provide a legal system.

Accepted Answer

A market economy relies heavily on contr

Question 10

Public education in the United States is

Accepted Answer

A)  subsidized mainly by state and local governments. 
B)  funded by the federal government only. 
C)  paid for mostly by the parents of students. 
D)  paid for through the Social Security program. 
A)  subsidized mainly by state and local governments. 
B)  funded by the federal government only. 
C)  paid for mostly by the parents of students. 
D)  paid for through the Social Security program.

Question 11

Which of the following is NOT related to the government's political function of income redistribution?

Accepted Answer

A)  providing money transfer payments 
B)  excise tax on cigarettes 
C)  Social Security 
D)  in-kind transfers 
A)  providing money transfer payments 
B)  excise tax on cigarettes 
C)  Social Security 
D)  in-kind transfers

Question 12

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.

Question 13

Market failures

Accepted Answer

A)  prevent the price system from attaining economic efficiency. 
B)  result in quantities and prices that are socially desirable. 
C)  strengthen economic efficiency by forcing unprofitable firms to close. 
D)  weaken the argument for government intervention in the economy. 
A)  prevent the price system from attaining economic efficiency. 
B)  result in quantities and prices that are socially desirable. 
C)  strengthen economic efficiency by forcing unprofitable firms to close. 
D)  weaken the argument for government intervention in the economy.

Question 14

To correct for the underproduction of products with positive externalities, the government must

Accepted Answer

A)  provide the incentives for the private sector to produce and consume the good. 
B)  provide tougher regulations on the industry. 
C)  increase taxes on the industry. 
D)  fine the industry. 
A)  provide the incentives for the private sector to produce and consume the good. 
B)  provide tougher regulations on the industry. 
C)  increase taxes on the industry. 
D)  fine the industry.

Question 15

Markets tend to underallocate resources to the production of a good when

Accepted Answer

A)  there are negative externalities. 
B)  there are positive externalities. 
C)  there are public goods produced. 
D)  equilibrium occurs. 
A)  there are negative externalities. 
B)  there are positive externalities. 
C)  there are public goods produced. 
D)  equilibrium occurs.

Question 16

Which of the following could best be categorized as a public good?

Accepted Answer

A)  an apartment in a public housing project 
B)  a pumpkin pie 
C)  public fireworks 
D)  a race track 
A)  an apartment in a public housing project 
B)  a pumpkin pie 
C)  public fireworks 
D)  a race track

Question 17

By subsidizing the provision of public education, the government

Accepted Answer

A)  generates an increase in the quantity of educational services demanded. 
B)  pushes the per-unit price that consumers pay for educational services below the market clearing price. 
C)  pushes the per-unit price that producers of educational services receive above the market clearing price. 
D)  all of the above. 
A)  generates an increase in the quantity of educational services demanded. 
B)  pushes the per-unit price that consumers pay for educational services below the market clearing price. 
C)  pushes the per-unit price that producers of educational services receive above the market clearing price. 
D)  all of the above.

Question 18

An important characteristic of private goods is

Accepted Answer

A)  the nonexclusion principle. 
B)  the principle of rival consumption. 
C)  the principle of joint consumption. 
D)  the principle of conspicuous consumption. 
A)  the nonexclusion principle. 
B)  the principle of rival consumption. 
C)  the principle of joint consumption. 
D)  the principle of conspicuous consumption.

Question 19

The economic functions of government differ from the political functions of government in that

Accepted Answer

A)  the economic functions are carried out by the federal government, while the political functions are carried out by state and local governments. 
B)  the economic functions include policies that affect income redistribution, while the political functions involve things that affect the way exchange is carried out. 
C)  the economic functions involve things that affect the way exchange is carried out while the political functions include policies that affect income redistribution. 
D)  the economic functions are carried out by state and local governments, while the political functions are carried out by the federal government. 
A)  the economic functions are carried out by the federal government, while the political functions are carried out by state and local governments. 
B)  the economic functions include policies that affect income redistribution, while the political functions involve things that affect the way exchange is carried out. 
C)  the economic functions involve things that affect the way exchange is carried out while the political functions include policies that affect income redistribution. 
D)  the economic functions are carried out by state and local governments, while the political functions are carried out by the federal government.

Question 20

Which of the following would be best classified as a private good?

Accepted Answer

A)  a missile defense system 
B)  police force 
C)  radio frequency 
D)  clothing 
A)  a missile defense system 
B)  police force 
C)  radio frequency 
D)  clothing

Exam 5: Public Spending and Public Choice

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

An example of a transfer payment is

-The funding of public education is

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

A government subsidy is typically used

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The quantity demanded of medical services is

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

Medicare subsidies will cause people to

Explain why economists consider it to be one of the economic functions of government to provide a legal system.

Public education in the United States is

Which of the following is NOT related to the government's political function of income redistribution?

Market failure occurs when

Market failures

To correct for the underproduction of products with positive externalities, the government must

Markets tend to underallocate resources to the production of a good when

Which of the following could best be categorized as a public good?

By subsidizing the provision of public education, the government

An important characteristic of private goods is

The economic functions of government differ from the political functions of government in that

Which of the following would be best classified as a private good?

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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