Question 1

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

Accepted Answer

A)  the political functions relate to income distribution while the economic functions relate to the way exchange is carried out. 
B)  the political functions are performed at the federal government while the economic functions are at the state and local government levels. 
C)  the political functions involve elections and the court systems while the economic functions involve taxation and transfers. 
D)  the President deals with the economic functions while Congress deals with the political functions. 
A)  the political functions relate to income distribution while the economic functions relate to the way exchange is carried out. 
B)  the political functions are performed at the federal government while the economic functions are at the state and local government levels. 
C)  the political functions involve elections and the court systems while the economic functions involve taxation and transfers. 
D)  the President deals with the economic functions while Congress deals with the political functions.

Question 2

A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals

Accepted Answer

A)  is unimportant since the firm is reducing the unemployment in the region. 
B)  creates a negative externality. 
C)  is the production of a public good. 
D)  creates a positive externality. 
A)  is unimportant since the firm is reducing the unemployment in the region. 
B)  creates a negative externality. 
C)  is the production of a public good. 
D)  creates a positive externality.

Question 3

Medicare and Social Security are examples of

Accepted Answer

A)  transfer payments. 
B)  public goods. 
C)  programs that do not respond to rational economic incentives. 
D)  a free market system. 
A)  transfer payments. 
B)  public goods. 
C)  programs that do not respond to rational economic incentives. 
D)  a free market system.

Question 4

An externality exists when

Accepted Answer

A)  goods are sold in specific geographic locations. 
B)  some of the benefits or costs associated with a good are borne by third parties. 
C)  the government taxes a good. 
D)  the government subsidizes a good. 
A)  goods are sold in specific geographic locations. 
B)  some of the benefits or costs associated with a good are borne by third parties. 
C)  the government taxes a good. 
D)  the government subsidizes a good.

Question 5

The government corrects for externalities in all of the following ways EXCEPT

Accepted Answer

A)  taxes. 
B)  regulation. 
C)  lobbying. 
D)  subsidies. 
A)  taxes. 
B)  regulation. 
C)  lobbying. 
D)  subsidies.

Question 6

What happens in public schools when government funds subsidize education?

Accepted Answer

A)  There is a shortage of schools. 
B)  The quality of education rises. 
C)  The cost of providing the education is less than what the student pays. 
D)  The cost of providing the education is more than what the students pays. 
A)  There is a shortage of schools. 
B)  The quality of education rises. 
C)  The cost of providing the education is less than what the student pays. 
D)  The cost of providing the education is more than what the students pays.

Question 7

Which of the following might be a method that the government could use to correct a negative externality?

Accepted Answer

A)  an effluent fee on waste from the production of goods that create negative externalities 
B)  government subsidies to producers of goods that create negative externalities 
C)  financing additional production of goods that create negative externalities 
D)  encouraging overallocation of resources of production of goods that create negative externalities 
A)  an effluent fee on waste from the production of goods that create negative externalities 
B)  government subsidies to producers of goods that create negative externalities 
C)  financing additional production of goods that create negative externalities 
D)  encouraging overallocation of resources of production of goods that create negative externalities

Question 8

In the United States, which of the following is NOT a generally accepted economic function of government?

Accepted Answer

A)  providing public goods 
B)  distributing consumer goods 
C)  ensuring economy-wide stability 
D)  promoting competition in the marketplace 
A)  providing public goods 
B)  distributing consumer goods 
C)  ensuring economy-wide stability 
D)  promoting competition in the marketplace

Question 9

An external cost, such as the cost generated by pollution, is

Accepted Answer

A)  a cost paid by consumers of the product. 
B)  a cost paid by producers of the product. 
C)  a cost paid by a third party or by society at large. 
D)  not a true opportunity cost of production. 
A)  a cost paid by consumers of the product. 
B)  a cost paid by producers of the product. 
C)  a cost paid by a third party or by society at large. 
D)  not a true opportunity cost of production.

Question 10

A characteristic of a public good is

Accepted Answer

A)  rival consumption. 
B)  the exclusion principle. 
C)  the free-rider problem. 
D)  clear property rights. 
A)  rival consumption. 
B)  the exclusion principle. 
C)  the free-rider problem. 
D)  clear property rights.

Question 11

Which of the following often involves positive external benefits?

Accepted Answer

A)  water pollution 
B)  drunken driving 
C)  inoculation programs 
D)  tobacco smoking 
A)  water pollution 
B)  drunken driving 
C)  inoculation programs 
D)  tobacco smoking

Question 12

The principal feature of private goods is that

Accepted Answer

A)  they cannot be rented or purchased. 
B)  consumption by one person reduces the quantity available to others. 
C)  no one can be excluded from consumption of the product. 
D)  externality problems associated with their production are always negative. 
A)  they cannot be rented or purchased. 
B)  consumption by one person reduces the quantity available to others. 
C)  no one can be excluded from consumption of the product. 
D)  externality problems associated with their production are always negative.

Question 13

According to your text, which of the following represents the largest source of tax receipts for the Federal government?

Accepted Answer

A)  sales taxes 
B)  individual income taxes 
C)  corporate income taxes 
D)  property taxes 
A)  sales taxes 
B)  individual income taxes 
C)  corporate income taxes 
D)  property taxes

Question 14

A negative externality such as pollution can be corrected by

Accepted Answer

A)  a subsidy to producers. 
B)  a tax on producers. 
C)  a subsidy to consumers. 
D)  a stimulus to production. 
A)  a subsidy to producers. 
B)  a tax on producers. 
C)  a subsidy to consumers. 
D)  a stimulus to production.

Question 15

Public goods are unlikely to be provided by the private sector because

Accepted Answer

A)  the production of the good creates negative externalities. 
B)  no one can be excluded from the consumption of the good. 
C)  the consumption of the good creates negative externalities. 
D)  the exclusion principle does not apply to public goods. 
A)  the production of the good creates negative externalities. 
B)  no one can be excluded from the consumption of the good. 
C)  the consumption of the good creates negative externalities. 
D)  the exclusion principle does not apply to public goods.

Question 16

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

Accepted Answer

A)  A person buys a car that is a lemon. 
B)  A worker is injured on the job. 
C)  A new restaurant's success causes another to go out of business. 
D)  A large wind turbine in a house's backyard ruins the view of other homeowners. 
A)  A person buys a car that is a lemon. 
B)  A worker is injured on the job. 
C)  A new restaurant's success causes another to go out of business. 
D)  A large wind turbine in a house's backyard ruins the view of other homeowners.

Question 17

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 benefits 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 18

Government-sponsored goods are those goods

Accepted Answer

A)  that society views desirable through the political process. 
B)  that companies give away as promotional prizes. 
C)  that have lower than average negative externality. 
D)  that only low-income individuals consume. 
A)  that society views desirable through the political process. 
B)  that companies give away as promotional prizes. 
C)  that have lower than average negative externality. 
D)  that only low-income individuals consume.

Question 19

Market failure occurs when

Accepted Answer

A)  a good is too expensive for the market to provide. 
B)  an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C)  one good is superior to another and drives it out of the market. 
D)  the stock market experiences a very large loss. 
A)  a good is too expensive for the market to provide. 
B)  an unrestrained market economy leads to too few or too many resources going to a specific economic activity. 
C)  one good is superior to another and drives it out of the market. 
D)  the stock market experiences a very large loss.

Question 20

Market failures include all of the following EXCEPT

Accepted Answer

A)  buyers pay for all the costs involved in the production of goods and services. 
B)  public goods. 
C)  positive externalities. 
D)  negative externalities. 
A)  buyers pay for all the costs involved in the production of goods and services. 
B)  public goods. 
C)  positive externalities. 
D)  negative externalities.

Exam 5: Public Spending and Public Choice

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

Medicare and Social Security are examples of

An externality exists when

The government corrects for externalities in all of the following ways EXCEPT

What happens in public schools when government funds subsidize education?

Which of the following might be a method that the government could use to correct a negative externality?

In the United States, which of the following is NOT a generally accepted economic function of government?

An external cost, such as the cost generated by pollution, is

A characteristic of a public good is

Which of the following often involves positive external benefits?

The principal feature of private goods is that

According to your text, which of the following represents the largest source of tax receipts for the Federal government?

A negative externality such as pollution can be corrected by

Public goods are unlikely to be provided by the private sector because

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

Government-sponsored goods are those goods

Market failure occurs when

Market failures include all of the following EXCEPT

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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