Question 1

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.E) A) and D)
F) B) and C)

Question 2

A free rider is someone who

Accepted Answer

A)  hops on the bus for free.
B)  enjoys the flowers I have planted and does not compensate me for them.
C)  creates a negative externality.
D)  buys a ticket for a movie.E) A) and D)
F) All of the above

Question 3

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.E) A) and D)
F) None of the above

Question 4

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.E) A) and C)
F) A) and B)

Question 5

Which event was most important in promoting the belief that the U.S.government should work to ensure economy-wide stability?

Accepted Answer

A)  World War II
B)  The Civil Rights Movement
C)  The California Gold Rush
D)  The Great DepressionE) C) and D)
F) A) and B)

Question 6

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large.Each individuals demand curve will shift ________,and the market demand curve for the product will shift ________.

Accepted Answer

A)  to the right;to the right
B)  to the right;to the left
C)  to the left;to the left
D)  to the left;to the rightE) B) and D)
F) B) and C)

Question 7

A result of a positive externality in the production of a good is that

Accepted Answer

A)  the price system will over-allocate resources to the production of that good or service.
B)  the price system will under-allocate resources to the production of that good or service.
C)  the market supply will be too high.
D)  the market demand will be too high.E) None of the above
F) A) and C)

Question 8

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.E) B) and D)
F) A) and B)

Question 9

Which of the following checks issued by the government represents a transfer payment?

Accepted Answer

A)  The federal government pays a defense contractor for development of a missile system.
B)  The federal government pays a retiree her Social Security benefits.
C)  The state of Oregon pays a construction firm for its work in repairing a state highway.
D)  The state of Illinois pays groundskeepers at the state capitol building their weekly wages.E) A) and C)
F) B) and C)

Question 10

Economically speaking,the design of Medicare

Accepted Answer

A)  encourages the consumption of medical services.
B)  discourages the consumption of medical services.
C)  helps to decrease the cost of care to non-Medicare patients.
D)  discourages the provision of medical services.E) A) and C)
F) C) and D)

Question 11

The difference between the economic and political functions of government is that

Accepted Answer

A)  the economic function is concerned with the Federal Taxation system while the political function is not.
B)  the economic function is concerned with correcting for market failures while the political function is not.
C)  the economic function is concerned with the reallocation of income while the political function is not.
D)  the economic function encourages merit goods while the political function discourages demerit goods.E) None of the above
F) B) and D)

Question 12

An effluent fee is a

Accepted Answer

A)  subsidy given to the producer of a positive externality.
B)  charge to a polluter that gives the right to discharge pollution into the air.
C)  fine imposed on a polluter for dumping illegal pollution.
D)  charge for a public good.E) All of the above
F) None of the above

Question 13

Which of the following is a government-inhibited good?

Accepted Answer

A)  A lighthouse
B)  National defense
C)  Public education
D)  CocaineE) B) and D)
F) None of the above

Question 14

Which of the following will LEAST likely generate positive external benefits to society?

Accepted Answer

A)  Education
B)  The use of cell phone services
C)  Health care
D)  Requiring drivers to undergo periodic eye examinationsE) All of the above
F) B) and C)

Question 15

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.E) None of the above
F) All of the above

Question 16

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.E) A) and D)
F) None of the above

Question 17

What type of policy does the government adopt in dealing with government-inhibited goods?

Accepted Answer

A)  It subsidizes their consumption.
B)  It subsidizes their production.
C)  It provides them as public goods.
D)  It taxes,regulates,or prohibits their use.E) A) and C)
F) B) and D)

Question 18

Which of the following is NOT a consequence of the introduction of the Medicare program?

Accepted Answer

A)  an increased quantity of medical services demanded
B)  an increased ability for the elderly to obtain medical services
C)  an increased ability for the poor to obtain medical services
D)  a reduced demand for medical servicesE) B) and C)
F) All of the above

Question 19

If the production of a product results in significant external costs,an appropriate government policy might be to

Accepted Answer

A)  subsidize the production of the good.
B)  tax producers and thus shift the supply curve to the left.
C)  tax consumers' incomes and thus shift the demand curve to the left.
D)  subsidize consumers since the good is being under-consumed.E) A) and C)
F) A) and B)

Question 20

Under present U.S.law,which one of the following is a government-inhibited good?

Accepted Answer

A)  Housing
B)  Medical care
C)  Heroin
D)  EducationE) C) and D)
F) B) and C)

Exam 5: Public Spending and Public Choice

A result of a positive externality in the production of a good is that

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

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Which of the following checks issued by the government represents a transfer payment?

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The difference between the economic and political functions of government is that

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Which of the following will LEAST likely generate positive external benefits to society?

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Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large.Each individuals demand curve will shift ________,and the market demand curve for the product will shift ________.

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An effluent fee is a

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

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What type of policy does the government adopt in dealing with government-inhibited goods?

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Which event was most important in promoting the belief that the U.S.government should work to ensure economy-wide stability?

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A free rider is someone who

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Economically speaking,the design of Medicare

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

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An important characteristic of private goods is

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Which of the following is a government-inhibited good?

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Market failure occurs when

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Market failures

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Under present U.S.law,which one of the following is a government-inhibited good?

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If the production of a product results in significant external costs,an appropriate government policy might be to

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Which of the following is NOT a consequence of the introduction of the Medicare program?

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Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large.Each individuals demand curve will shift ,and the market demand curve for the product will shift .

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