Question 1

The "principle of rival consumption" applies to which of the following?

Accepted Answer

A)  national defense 
B)  the free-rider problem 
C)  the exclusion principle 
D)  a private good 
A)  national defense 
B)  the free-rider problem 
C)  the exclusion principle 
D)  a private good

Question 2

Which of the following statements is NOT true about the price system?

Accepted Answer

A)  The price system allows resources to flow from low-valued uses to high-valued uses. 
B)  Firms have total control over what consumers can buy. 
C)  Individuals have freedom to purchase what they want. 
D)  The price system allows for economic efficiency. 
A)  The price system allows resources to flow from low-valued uses to high-valued uses. 
B)  Firms have total control over what consumers can buy. 
C)  Individuals have freedom to purchase what they want. 
D)  The price system allows for economic efficiency.

Question 3

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

Accepted Answer

A)  a neighbor's flower garden that you enjoy seeing 
B)  traffic congestion 
C)  an increased supply of chocolate lowers chocolate prices for all consumers 
D)  pollution 
A)  a neighbor's flower garden that you enjoy seeing 
B)  traffic congestion 
C)  an increased supply of chocolate lowers chocolate prices for all consumers 
D)  pollution

Question 4

A government agency charged with enforcing antitrust laws is

Accepted Answer

A)  the Federal Reserve Board. 
B)  the National Labor Relations Board. 
C)  the Council of Economic Advisors. 
D)  the Federal Trade Commission. 
A)  the Federal Reserve Board. 
B)  the National Labor Relations Board. 
C)  the Council of Economic Advisors. 
D)  the Federal Trade Commission.

Question 5

-What would happen in a free market system when production of a good generates negative externalities?

Accepted Answer

A)  There is a shortage of the good. 
B)  There is a surplus of the good. 
C)  The equilibrium quantity of the good is less than the efficient amount. 
D)  The equilibrium quantity of the good is more than the efficient amount. 
A)  There is a shortage of the good. 
B)  There is a surplus of the good. 
C)  The equilibrium quantity of the good is less than the efficient amount. 
D)  The equilibrium quantity of the good is more than the efficient amount.

Question 6

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

Accepted Answer

A)  a negative externality. 
B)  a private good. 
C)  the need for antitrust legislation. 
D)  a free rider problem. 
A)  a negative externality. 
B)  a private good. 
C)  the need for antitrust legislation. 
D)  a free rider problem.

Question 7

Assume the production of a good gives rise to external benefits. The government may increase efficiency by

Accepted Answer

A)  subsidizing consumption of the good. 
B)  requiring all producers of the good to be licensed. 
C)  taxing production of the good. 
D)  imposing taxes on the good. 
A)  subsidizing consumption of the good. 
B)  requiring all producers of the good to be licensed. 
C)  taxing production of the good. 
D)  imposing taxes on the good.

Question 8

What are the three goals of the Employment Act of 1946?

Accepted Answer

A)  keep the peace, improve public education, and protect the environment 
B)  improve the education system, provide more job training, and expand the number of government jobs 
C)  full employment, price stability, and economic growth 
D)  full employment, better schools, and lower income taxes 
A)  keep the peace, improve public education, and protect the environment 
B)  improve the education system, provide more job training, and expand the number of government jobs 
C)  full employment, price stability, and economic growth 
D)  full employment, better schools, and lower income taxes

Question 9

-Graphically, the presence of an external cost that is ignored by producers can be shown as

Accepted Answer

A)  a market supply curve to the left of the market supply curve for where the producers have to pay for the external cost. 
B)  a market supply curve to the right of the market supply curve for which the producers have to pay for the external cost. 
C)  a market supply curve the same as the market supply curve for which the producers have to pay for the external cost. 
D)  the absence of a market supply curve. 
A)  a market supply curve to the left of the market supply curve for where the producers have to pay for the external cost. 
B)  a market supply curve to the right of the market supply curve for which the producers have to pay for the external cost. 
C)  a market supply curve the same as the market supply curve for which the producers have to pay for the external cost. 
D)  the absence of a market supply curve.

Question 10

When a good causes positive external benefits to accrue to third parties, an unfettered market will

Accepted Answer

A)  under-allocate resources to the good causing the benefit. 
B)  over-allocate resources to the good causing the benefit. 
C)  cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently. 
D)  eliminate such goods. 
A)  under-allocate resources to the good causing the benefit. 
B)  over-allocate resources to the good causing the benefit. 
C)  cause the equilibrium quantity, established before the benefit is taken into account, to be produced more efficiently. 
D)  eliminate such goods.

Question 11

An example of a public good is

Accepted Answer

A)  software produced by Microsoft. 
B)  housing subsidies. 
C)  the car I own. 
D)  the fire department. 
A)  software produced by Microsoft. 
B)  housing subsidies. 
C)  the car I own. 
D)  the fire department.

Question 12

Suppose that the market price of good A equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

Accepted Answer

A)  The good is priced too low. 
B)  An external benefit is associated with good A. 
C)  Resources are over-allocated in the production of good A. 
D)  Too much of good A is being produced. 
A)  The good is priced too low. 
B)  An external benefit is associated with good A. 
C)  Resources are over-allocated in the production of good A. 
D)  Too much of good A is being produced.

Question 13

Why are public goods provided by the government, rather than by the private sector?

Accepted Answer

A)  because they are large-scale projects that require the kind of financing only governments can generate through the issuance of bonds 
B)  because it would be difficult for a private sector firm to make a profit providing a public good, since consumers who benefit would not have to pay for it 
C)  because no one really benefits from public goods 
D)  because private sector firms do not have the foresight to plan for public goods 
A)  because they are large-scale projects that require the kind of financing only governments can generate through the issuance of bonds 
B)  because it would be difficult for a private sector firm to make a profit providing a public good, since consumers who benefit would not have to pay for it 
C)  because no one really benefits from public goods 
D)  because private sector firms do not have the foresight to plan for public goods

Question 14

All of the following are economic functions of the government EXCEPT

Accepted Answer

A)  providing a legal system. 
B)  determining the wage rate for most jobs. 
C)  promoting competition in the market. 
D)  providing public goods. 
A)  providing a legal system. 
B)  determining the wage rate for most jobs. 
C)  promoting competition in the market. 
D)  providing public goods.

Question 15

What is the assumption underlying public-choice theory?

Accepted Answer

A)  Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B)  The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C)  Individuals act within the political process to improve their own individual well-being. 
D)  Resources in the public sector are not scarce. 
A)  Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. 
B)  The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. 
C)  Individuals act within the political process to improve their own individual well-being. 
D)  Resources in the public sector are not scarce.

Question 16

What is the free-rider problem, and how is it related to public goods?

Accepted Answer

The free-rider problem arises from the e

Question 17

-In the above figure, if a Medicare subsidy that had previously been paid by the government has now been eliminated, the result will be

Accepted Answer

A)  an increase in the price received by producers, from P0 to Ps. 
B)  a decrease in the price received by producers, from Ps to P0. 
C)  an increase in the price paid by consumers, from P0 to Ps. 
D)  a decrease in the price paid by consumers, from Ps to P0. 
A)  an increase in the price received by producers, from P0 to Ps. 
B)  a decrease in the price received by producers, from Ps to P0. 
C)  an increase in the price paid by consumers, from P0 to Ps. 
D)  a decrease in the price paid by consumers, from Ps to P0.

Question 18

The provision of a legal system is an important economic function of the government because

Accepted Answer

A)  lawyers and judges tend to be high-income people. 
B)  people need to feel safe when they go to work. 
C)  the legal system affects how exchange takes place through its enforcement of contracts. 
D)  the legal system affects the distribution of income through its awarding of damages in accident claims. 
A)  lawyers and judges tend to be high-income people. 
B)  people need to feel safe when they go to work. 
C)  the legal system affects how exchange takes place through its enforcement of contracts. 
D)  the legal system affects the distribution of income through its awarding of damages in accident claims.

Question 19

Public goods are desired because

Accepted Answer

A)  people want and value them but the private sector will not make them available. 
B)  we want the government to spend our tax dollars. 
C)  they came in small units. 
D)  they make supply equal to demand for private goods. 
A)  people want and value them but the private sector will not make them available. 
B)  we want the government to spend our tax dollars. 
C)  they came in small units. 
D)  they make supply equal to demand for private goods.

Question 20

Market failures

Accepted Answer

A)  are usually caused by government interference in the economy. 
B)  prevent the price system from attaining economic efficiency. 
C)  encourage people to purchase more of a good than they really want. 
D)  encourage businesses to produce more of a good than they really want to. 
A)  are usually caused by government interference in the economy. 
B)  prevent the price system from attaining economic efficiency. 
C)  encourage people to purchase more of a good than they really want. 
D)  encourage businesses to produce more of a good than they really want to.

Exam 5: Public Spending and Public Choice

The "principle of rival consumption" applies to which of the following?

Which of the following statements is NOT true about the price system?

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

A government agency charged with enforcing antitrust laws is

-What would happen in a free market system when production of a good generates negative externalities?

In the spring, I enjoy the fragrance coming from my neighbors' flowers. The fragrance is is an example of

Assume the production of a good gives rise to external benefits. The government may increase efficiency by

What are the three goals of the Employment Act of 1946?

-Graphically, the presence of an external cost that is ignored by producers can be shown as

When a good causes positive external benefits to accrue to third parties, an unfettered market will

An example of a public good is

Suppose that the market price of good A equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

Why are public goods provided by the government, rather than by the private sector?

All of the following are economic functions of the government EXCEPT

What is the assumption underlying public-choice theory?

What is the free-rider problem, and how is it related to public goods?

-In the above figure, if a Medicare subsidy that had previously been paid by the government has now been eliminated, the result will be

The provision of a legal system is an important economic function of the government because

Public goods are desired because

Market failures

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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