Deck 10: The Public Sector

Question 1

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

A)medical care
B)Canada Post
C)national defense
D)CN Railway

Answer 1

national defense

Question 2

The principle feature of private goods is that

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

Answer 2

consumption by one person reduces the quantity available to others.

Question 3

Public goods are not likely to be provided by the private sector because

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

Answer 3

no one can be excluded from the consumption of the good.

Question 4

The purpose of Canadian anticombines legislation is

A)to reduce unemployment.
B)to increase the power of monopoly.
C)to maximize employment for a given price level.
D)to reduce firms' monopoly power.

Question 5

Which of the following does NOT describe the purpose of anti-combines legislation?

A)reducing the power of monopolies
B)restricting the formation of monopolies
C)promoting competition within the economic system
D)prohibiting activities that promote trade

Question 6

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

A)the highway system
B)local fire and police services
C)clothing
D)clean rivers and lakes

Question 7

One characteristic of a public good is that it

A)can be easily subdivided into small units.
B)can be consumed by many individuals at the same time.
C)always eliminates the free-rider problem.
D)is available for consumption by only a few individuals at any particular time.

Question 8

Private goods are goods or services

A)that can only be consumed by one individual at a time.
B)that violate the principle of rival consumption.
C)to which the exclusion principle applies.
D)for which no public market exists.

Question 9

The economic role of the legal system might best be described as

A)promoting the allocative efficiency of competitive markets.
B)establishing "rules of the game" and acting as referee when disputes arise among market participants.
C)identifying and producing merit goods.
D)identifying and producing public goods.

Question 10

The distinguishing characteristic of private goods is that

A)they can be sold but not rented.
B)their use is exclusive to the people who purchase them.
C)they can be sold or rented,but not borrowed.
D)the principle of rival consumption does not apply to them.

Question 11

One distinguishing characteristic of a public good is

A)noncompetitive production.
B)durability.
C)non-excludability.
D)rivalrous consumption.

Question 12

Public goods are goods or services that

A)are produced by the government.
B)are provided only by the capitalistic system.
C)can be consumed by additional users at no additional cost.
D)are provided only in command economies.

Question 13

The government tries to protect the benefits from a competitive economic system by passing and enforcing

A)price controls.
B)tariff legislation.
C)anticombines legislation.
D)building codes and zoning laws.

Question 14

To protect the competitive economic system by restricting the formation of monopolies,the government has passed and enforced

A)anti-combines laws.
B)tort laws.
C)zoning laws.
D)regulatory laws.

Question 15

Which of the following goods is subject to the free-rider problem?

A)a public transit system
B)a public golf club
C)national defense
D)a public university

Question 16

One distinguishing characteristic of public goods is

A)noncompetitive production.
B)durability.
C)exclusivity.
D)non-rivalrous consumption.

Question 17

Which one of the following is NOT a characteristic of public goods?

A)They are indivisible.
B)They can be used by increasing numbers of people at no additional cost.
C)They are subject to the principle of rival consumption.
D)It is difficult to charge people on the basis of how much they use.

Question 18

The legal system in Canada generally tends

A)to discourage the entry of new business firms.
B)to support monopolies.
C)to promote competition.
D)to actively discourage unionization.

Question 19

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

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

Question 20

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

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 by awarding damages in accident claims.

Question 21

Which of the following activities is NOT an economic function of government?

A)providing merit goods
B)promoting competition
C)providing a legal system
D)ensuring economic stability

Question 22

Which of the following does NOT involve transfers in kind?

A)salaries of government employees
B)public education
C)Canadian health care
D)public housing

Question 23

Which of the following commodities is a demerit good?

A)a lighthouse
B)national defense
C)alcohol
D)public education

Question 24

Which of the following is a demerit good?

A)housing
B)education
C)heroin
D)medical care

Question 25

In the absence of government intervention

A)free-rider problems are less likely to occur.
B)market failure is less likely to occur.
C)public goods are likely to be over-provided.
D)public goods are likely to be under-provided.

Question 26

The free-rider problem is

A)the use of the public goods provided by a state by residents of another state.
B)the incentive people have to avoid paying for a good they cannot be excluded from consuming.
C)the incentive people have once they are receiving welfare to keep getting welfare.
D)that people cannot be forced to accept public goods.

Question 27

Which of the following definitely would NOT be considered a merit good?

A)musical concerts
B)museums
C)automobiles
D)libraries

Question 28

A merit good is a good or service that

A)the political process has deemed socially desirable.
B)should be taxed to correct the market failure and allocative inefficiency.
C)cannot be individually consumed.
D)would be overproduced by the private market.

Question 29

The free-rider problem is

A)the use of the public goods provided by a state by residents of another state.
B)the incentive people have to avoid paying for a public good.
C)the incentive people have once they are receiving welfare to keep getting welfare.
D)that people cannot be forced to accept public goods.

Question 30

Public goods are characterized by free-rider problems because

A)public goods are usually things that people really do not want to consume.
B)public goods are characterized by the principle of rival consumption.
C)no one can be excluded from the benefits of public goods once they have been produced.
D)public goods can easily be subdivided into small units.

Question 31

Examples of transfer payments are

A)wages,profits,interest and rents.
B)federal government spending for national defense.
C)benefits provided by CPP,welfare,and employment insurance.
D)salaries of educators,police,and fire fighters.

Question 32

Cocaine is an example of

A)a free good.
B)a public good.
C)a merit good.
D)a demerit good.

Question 33

Grants to support needy students are an example of

A)transfers in kind.
B)transfer payments.
C)public goods.
D)externalities.

Question 34

Demerit goods are often

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

Question 35

Which of the following is NOT an economic function of government?

A)hiring the hard-to-employ
B)providing public goods
C)promoting competition
D)promoting price stability

Question 36

Which of the following is an example of the free-rider problem?

A)a neighbour refuses to help pay for a street light that is intended to help reduce crime
B)a law enforcement officer receives a uniform from the police department
C)a student refuses to buy a college catalog
D)a fast food employee is provided food at work

Question 37

A demerit good is a good or service that

A)the political process has deemed socially desirable.
B)can be consumed by one individual without affecting the consumption of another individual.
C)is not subject to the principle of mutual exclusivity.
D)the political process has deemed socially undesirable.

Question 38

Tax-free loans to Canadian students are an example of

A)in-kind transfers.
B)provision of public goods.
C)free-rider problems.
D)subsidies for merit goods.

Question 39

The free-rider problem is encountered when

A)all individuals are willing to pay for what they consume.
B)someone benefits from the consumption of a good without paying his or her full share.
C)all individuals who consume a public good pay for it.
D)all goods consumed and produced are private goods.

Question 40

By definition,a merit good

A)is a good that is deemed socially desirable.
B)does not affect society's general welfare.
C)is always a public good.
D)is a good available only to upper-income groups.

Question 41

Money payments by governments to individuals for which no services or goods are supplied are

A)black market payments.
B)merit payments.
C)transfer payments.
D)demerit payments.

Question 42

Scholarships awarded to students with high Grade Point Averages are an example of

A)transfers in kind.
B)transfer payments.
C)public goods.
D)externalities.

Question 43

Government goods are

A)merit goods supplied by government.
B)public goods supplied by government.
C)private goods supplied by government.
D)government-supplied goods,whether public or private.

Question 44

Transfer payments are payments

A)for in-kind services provided to the government.
B)made to people who are needy.
C)for which no services or goods are rendered.
D)made by the government to its current workers.

Question 45

Rational ignorance refers to the idea that

A)decision-makers do not understand what it means to be rational.
B)information is costly,so decision-makers normally will act less than perfect information.
C)bureaucrats take advantage of voter ignorance.
D)dollar votes and political votes will lead to different outcomes.

Question 46

The marginal tax rate shows

A)the average rate of taxation in the economy.
B)the deductions permitted for child care and medical expenses.
C)the percentage of income a typical family pays in tax.
D)the extra tax due on an extra dollar of income.

Question 47

A consumer who buys a product without having compared prices at nearby stores

A)violates the assumption of rationality underlying consumer theory.
B)is irrational because she could save money by shopping around.
C)is rational because it would be costly to find out how much the product would cost elsewhere.
D)is rationally ignorant if she expects the costs of doing so to be greater than possible savings.

Question 48

The system of rewards and punishments decision-makers face is called the

A)incentive structure.
B)reward structure.
C)market structure.
D)reaction structure.

Question 49

Suppose the income tax rate schedule is 0% on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Dennis,who has been earning $28,000 a year,receives a ten percent raise.The additional tax he will he have to pay is $________.

Question 50

The study of collective decision making is also known as the theory of

A)collective policy.
B)public choice.
C)private choice.
D)government policy.

Question 51

Suppose the tax rate on the first $10,000 of income is zero;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family A has an income of $120,000 and Family B an income of $55,000.The tax bill will be ________ for A and ________ for B.

Question 52

Someone who votes for an election candidate without thoroughly investigating the candidate's position on all issues

A)is rational because the candidate probably won't share all of the voter's preferences anyway.
B)is irrational because the candidate might not share all of the voter's preferences.
C)is rational because it would be costly to determine all of the candidate's positions.
D)is rationally ignorant if he expects the costs of gaining the information to be greater than benefits.

Question 53

The theory of public choice is

A)the analysis of election outcomes.
B)the analysis of collective decision making.
C)the analysis of market outcomes.
D)the analysis of political poll results.

Question 54

Suppose the income tax rate schedule is 0% on the first $10,000;is 10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Dennis,who has been earning $28,000 a year,receives a ten percent raise.How much additional tax will he have to pay?

A)$560
B)$540
C)$280
D)$260

Question 55

Suppose the tax rate on the first $10,000 of income is zero;it is 10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family C has an income of $100,000.What is the family's income tax bill?

A)$40,000
B)$22,000
C)$30,000
D)$20,000

Question 56

Suppose the tax rate on the first $10,000 of income is zero;it is 10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family A has an income of $120,000 and Family B an income of $55,000.What is the tax bill of each?

A)$48,000 for A and $16,500 for B.
B)$32,000 for A and $7,500 for B.
C)$34,000 for A and $8,500 for B.
D)$22,000 for A and $6,600 for B.

Question 57

Rational ignorance is relevant for decision-making

A)only in private markets
B)in both the public and private sectors.
C)only for pubic choice.
D)only for public goods.

Question 58

An example of a transfer in kind is

A)national defense.
B)subsidized public housing.
C)Social Security.
D)employment benefits.

Question 59

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

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

Question 60

Suppose the tax rate on the first $10,000 of income is zero;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family C has an income of $100,000.The family's income tax bill will be $________.

Question 61

Suppose the income tax rate is zero on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on all income above $70,000.Family A has income of $100,000 while Family B has income of $40,000.The marginal tax rate for A will be ________% and for B will be ________%.

Question 62

The Canadian Goods and Services Tax is

A)a progressive tax because all workers pay the tax.
B)a regressive tax because it taxes consumption at the same rate for both rich and poor.
C)a progressive tax because higher income individuals pay more tax.
D)a proportional tax because everyone is charged the same percentage tax rate.

Question 63

Provincial sales taxes are

A)progressive because higher income earners pay more tax.
B)regressive because they tax consumption at the same rate for both rich and poor.
C)regressive because higher income families don't pay as much tax as lower income families.
D)proportional because everyone is charged the same percentage tax rate.

Question 64

Suppose the income tax rate schedule is 0% on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Family A earns $28,000 a year and Family B earns $65,000 a year.Both receive a ten percent raise.The additional tax owed by A is ________ and the extra tax owed by B is ________.

Question 65

Suppose the tax rate on the first $10,000 income is zero 10% on the next $20,000;20% on the next $20,000;30% on the next $30,000;and 40% on any income over $80,000.Family A has income of $40,000 and Family B has income of $100,000.What is the marginal and average tax rate for each family?

A)Family A: marginal--20%;average--15%;Family B: marginal 40%;average 20%.
B)Family A: marginal--20%;average--10%;Family B: marginal 40%;average 23%.
C)Family A: marginal--20%;average--20%;Family B: marginal 40%;average 40%.
D)Family A: marginal--10%;average--10%;Family B: marginal 30%;average 30%.

Question 66

Suppose the tax rate on the first $10,000 of income is zero;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family C has an income of $100,000.What is family C's average tax rate?

A)40%
B)22%
C)30%
D)20%

Question 67

A tax system characterized by a constant average tax rate is known as a

A)progressive tax system.
B)proportional tax system.
C)regressive tax system.
D)fair tax system.

Question 68

A tax system characterized by a constant marginal tax rate is a

A)progressive tax system.
B)proportional tax system.
C)regressive tax system.
D)fair tax system.

Question 69

Suppose the income tax rate is 0% on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Family A earns $28,000 a year and Family B earns $65,000 a year.Both receive a ten percent raise,after which A's marginal tax rate is ________% and B's marginal tax rate is ________%.

Question 70

Suppose the tax rate on the first $10,000 of income is zero;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on income over $70,000.Family C has an income of $100,000.The family's average tax rate is ________%.

Question 71

Suppose the income tax rate schedule is 0% on the first $10,000;10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on any income over $70,000.Family A earns $28,000 a year and Family B earns $65,000 a year.Both receive a ten percent raise.What is the marginal tax rate of each and what is the extra tax paid by each after the raise?

A)Family A: 20% marginal tax rate and $560 in extra taxes.Family B: 40% marginal tax rate and $2,600 in extra taxes.
B)Family A: 15% marginal tax rate and $420 in extra taxes;Family B: 35% marginal tax rate and $2,275 in extra taxes.
C)Family A: 20% marginal tax rate and $360 in extra taxes;Family B: 40% marginal tax rate and $2,100 in extra taxes.
D)Family A: 10% marginal tax rate and $280 in extra taxes;Family B: 30% marginal tax rate and $1,950 in extra taxes.

Question 72

A proportional income tax structure implies that

A)marginal tax rates are the same regardless of the level of income.
B)marginal tax rates increase as the level of income increases.
C)everyone pays the same dollar amount in taxes.
D)marginal tax rates decline as the level of income declines.

Question 73

Suppose the income tax rate is 0% on the first $20,000,20 percent on the next $20,000,30 percent on the next $20,000,40 percent on the next $20,000,and 50 percent on all income over that.The Arm family has a taxable income of $80,000.What is the average tax rate for this family?

A)22.5 percent
B)27.5 percent
C)35 percent
D)37.5 percent

Question 74

The marginal tax rate applies to

A)the income received by people above the national average.
B)all income earned by a family.
C)the income in the highest tax bracket reached.
D)the income of the richest Canadians.

Question 75

Suppose the income tax rate is zero on the first $10,000;is 10% on the next $20,000;20% on the next $20,000;30% on the next $20,000;and 40% on all income above $70,000.Family A has income of $100,000 while Family B has income of $40,000.The marginal tax rate on the two families are

A)40% on A and 10% on B.
B)30% on A and 20% on B.
C)40% on A and 20% on B.
D)30% on A and 30% on B.

Question 76

A flat-tax on all personal income would be an example of

A)a regressive tax.
B)a progressive tax.
C)a value added tax.
D)a proportional tax.

Question 77

The marginal tax rate is equal to

A)the average tax payment divided by the total tax payment.
B)the percent of total income that goes to taxes.
C)the change in the tax payment divided by the change in taxable income.
D)the total tax payment divided by total income.

Question 78

A tax system characterized by a constant marginal tax rate is a

A)progressive tax system.
B)proportional tax system.
C)regressive tax system.
D)fair tax system.

Question 79

The marginal tax rate and the average tax rate are the same under a

A)regressive income tax system.
B)progressive income tax system.
C)proportional income tax system.
D)consumption tax system.

Question 80

Suppose the income tax rate is 0 on the first $20,000,20 percent on the next $20,000,30 percent on the next $20,000,40 percent on the next $20,000,and 50 percent on all income over that.The Arm family has a taxable income of $80,000.The average tax rate for this family is ________%.