Question 1

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?

Accepted Answer

A)  The incentive system for individuals to perform efficiently are vastly different. 
B)  The workers themselves are really quite different types of people. 
C)  In both sectors individuals will try to maximize their own individual gains over the gains of others. 
D)  Costs and resources are vastly different in each sector. 
A)  The incentive system for individuals to perform efficiently are vastly different. 
B)  The workers themselves are really quite different types of people. 
C)  In both sectors individuals will try to maximize their own individual gains over the gains of others. 
D)  Costs and resources are vastly different in each sector.

Question 2

Government payment of a per-unit subsidy for health care services causes the out-of-pocket price that consumers pay for care to be

Accepted Answer

A)  less than the price that health care providers receive for providing care. 
B)  greater than the price that health care providers receive for providing care. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero. 
A)  less than the price that health care providers receive for providing care. 
B)  greater than the price that health care providers receive for providing care. 
C)  greater than the market clearing price without the subsidy. 
D)  equal to zero.

Question 3

What is market failure? How can the government correct market failure?

Accepted Answer

Market failure is a situation in which t

Question 4

Public schools

Accepted Answer

A)  allow students to get an education without incurring any opportunity cost. 
B)  provide education at a price below the market price. 
C)  provide education at a price above the market price. 
D)  have done a better job of educating their students in science, math, reading, and writing as the subsidies they receive have increased over the years. 
A)  allow students to get an education without incurring any opportunity cost. 
B)  provide education at a price below the market price. 
C)  provide education at a price above the market price. 
D)  have done a better job of educating their students in science, math, reading, and writing as the subsidies they receive have increased over the years.

Question 5

When comparing market and public sector decision making, which statement is NOT true?

Accepted Answer

A)  Self-interest is the motivating force in each decision making arena. 
B)  In both decision making sectors, majority rule is how things are done. 
C)  In both decision making sectors, there are scarcity constraints. 
D)  Collective (political) outcomes and economic outcomes may differ. 
A)  Self-interest is the motivating force in each decision making arena. 
B)  In both decision making sectors, majority rule is how things are done. 
C)  In both decision making sectors, there are scarcity constraints. 
D)  Collective (political) outcomes and economic outcomes may differ.

Question 6

Explain what economic efficiency is. How does a price system lead to economic efficiency?

Accepted Answer

Market failure is a situation in which a

Question 7

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. Which of the panels would be consistent with the situation in which external costs exist?

Accepted Answer

A)  Panel 1 
B)  Panel 2 
C)  Panels 1 and 2 
D)  neither panel 
A)  Panel 1 
B)  Panel 2 
C)  Panels 1 and 2 
D)  neither panel

Question 8

Which of the following types of goods would most likely be classified as a government-inhibited good?

Accepted Answer

A)  heroin 
B)  marijuana 
C)  tobacco 
D)  All of the above are correct. 
A)  heroin 
B)  marijuana 
C)  tobacco 
D)  All of the above are correct.

Question 9

A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called

Accepted Answer

A)  a public good. 
B)  a merit good. 
C)  an externality. 
D)  the free-rider problem. 
A)  a public good. 
B)  a merit good. 
C)  an externality. 
D)  the free-rider problem.

Question 10

Which of the following is heavily subsidized by state and local governments?

Accepted Answer

A)  Medicare 
B)  Social Security 
C)  public education 
D)  food stamps 
A)  Medicare 
B)  Social Security 
C)  public education 
D)  food stamps

Question 11

U.S. antitrust laws view monopolies as undesirable because

Accepted Answer

A)  monopolies restrain trade and promote inefficiencies. 
B)  monopolies create inferior products. 
C)  monopolies produce only capital goods. 
D)  monopolies produce only cheap, low quality goods. 
A)  monopolies restrain trade and promote inefficiencies. 
B)  monopolies create inferior products. 
C)  monopolies produce only capital goods. 
D)  monopolies produce only cheap, low quality goods.

Question 12

Which of the following does NOT involve transfers in kind?

Accepted Answer

A)  public housing 
B)  food stamps 
C)  Medicare 
D)  income tax refund 
A)  public housing 
B)  food stamps 
C)  Medicare 
D)  income tax refund

Question 13

Which of the following is NOT an example of an externality?

Accepted Answer

A)  A cookie company emits a wonderful aroma in the air that makes people smile. 
B)  The neighbor's wind chimes interfere with your sleep. 
C)  A firm lays off 100 workers. 
D)  Cancer-causing chemicals are dumped into the drinking water supply of a city. 
A)  A cookie company emits a wonderful aroma in the air that makes people smile. 
B)  The neighbor's wind chimes interfere with your sleep. 
C)  A firm lays off 100 workers. 
D)  Cancer-causing chemicals are dumped into the drinking water supply of a city.

Question 14

Which of the following is an example of a positive externality?

Accepted Answer

A)  something obtainable at a zero price 
B)  a lower crime rate for a community in which residents receive more education 
C)  increased purchases of landscaping services by a homeowner that boost a neighbor's property value 
D)  a discount for consumers buying in large quantity 
A)  something obtainable at a zero price 
B)  a lower crime rate for a community in which residents receive more education 
C)  increased purchases of landscaping services by a homeowner that boost a neighbor's property value 
D)  a discount for consumers buying in large quantity

Question 15

Inoculations of children against infectious diseases are

Accepted Answer

A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  dangerous for society. 
D)  an example of a public good. 
A)  an example of an external benefit. 
B)  an example of an external cost. 
C)  dangerous for society. 
D)  an example of a public good.

Question 16

-Over the past 50 years, there has been an increase in spending on public education without a noticeable improvement in student performance. One explanation given by economists on why student performance has not improved is that

Accepted Answer

A)  not enough funds have been spent on public education. 
B)  schools are providing high-priced services that are not valued by parents. 
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D)  too much competition for educational services. 
A)  not enough funds have been spent on public education. 
B)  schools are providing high-priced services that are not valued by parents. 
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium. 
D)  too much competition for educational services.

Question 17

A government-inhibited good is often

Accepted Answer

A)  produced by the government. 
B)  subsidized. 
C)  taxed. 
D)  advertised. 
A)  produced by the government. 
B)  subsidized. 
C)  taxed. 
D)  advertised.

Question 18

A characteristic of a public good is that a public good is provided

Accepted Answer

A)  to some businesses, but not to others. 
B)  only in some states. 
C)  to low income residents in some states. 
D)  to many individuals at no additional cost. 
A)  to some businesses, but not to others. 
B)  only in some states. 
C)  to low income residents in some states. 
D)  to many individuals at no additional cost.

Question 19

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. Which of the following statements is TRUE about the effect the Medicare subsidy has had on the consumption of medical services?

Accepted Answer

A)  The amount of medical services provided has decreased from Q0 to Qd as a result of the subsidy. 
B)  The amount of medical services provided has increased from Q0 to QM as a result of the subsidy. 
C)  The amount of medical services provided has increased from Qd to QM as a result of the subsidy. 
D)  The amount of medical services provided has remained unchanged as a result of the subsidy. 
A)  The amount of medical services provided has decreased from Q0 to Qd as a result of the subsidy. 
B)  The amount of medical services provided has increased from Q0 to QM as a result of the subsidy. 
C)  The amount of medical services provided has increased from Qd to QM as a result of the subsidy. 
D)  The amount of medical services provided has remained unchanged as a result of the subsidy.

Question 20

-According to the above figure, if steel mills ignore the cost of pollution, then the supply curve will

Accepted Answer

A)  shift from S1 to S2. 
B)  shift from S2 to S1. 
C)  remain at S1. 
D)  shift either to the left or the right, but it is impossible to say without more information. 
A)  shift from S1 to S2. 
B)  shift from S2 to S1. 
C)  remain at S1. 
D)  shift either to the left or the right, but it is impossible to say without more information.

Exam 5: Public Spending and Public Choice

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?

Government payment of a per-unit subsidy for health care services causes the out-of-pocket price that consumers pay for care to be

What is market failure? How can the government correct market failure?

Public schools

When comparing market and public sector decision making, which statement is NOT true?

Explain what economic efficiency is. How does a price system lead to economic efficiency?

Which of the following types of goods would most likely be classified as a government-inhibited good?

A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called

Which of the following is heavily subsidized by state and local governments?

U.S. antitrust laws view monopolies as undesirable because

Which of the following does NOT involve transfers in kind?

Which of the following is NOT an example of an externality?

Which of the following is an example of a positive externality?

Inoculations of children against infectious diseases are

-Over the past 50 years, there has been an increase in spending on public education without a noticeable improvement in student performance. One explanation given by economists on why student performance has not improved is that

A government-inhibited good is often

A characteristic of a public good is that a public good is provided

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. Which of the following statements is TRUE about the effect the Medicare subsidy has had on the consumption of medical services?

-According to the above figure, if steel mills ignore the cost of pollution, then the supply curve will

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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