Question 1

Consumers are sovereign when

Accepted Answer

A)  prices are decided by sellers.
B)  a few consumers exercise coercion on sellers and other consumers.
C)  they can prevent market failure.
D)  they have the freedom to decide what they wish to purchase.

Question 2

Medicare and Social Security are examples of

Accepted Answer

A)  transfer payment programs.
B)  public goods.
C)  programs that do not respond to rational economic incentives.
D)  the efficient allocation of resources under a free market system.

Question 3

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

Question 4

What effect have Medicare subsidies had on the consumption of medical services?

Accepted Answer

A)  The consumption of medical services has been unaffected, because people don't consider the financial cost when seeking services related to their health.
B)  The consumption of medical services has been unaffected, because government restrictions have prevented patients from seeking a level of care above and beyond what they would choose if they had to pay for medical treatment out of pocket.
C)  The consumption of medical services has increased because Medicare subsidies give people the incentive to seek more care than they would otherwise.
D)  The effect cannot be measured because it is difficult to quantify the amount of resources devoted to our health care system.

Question 5

Government outlays include all of the following EXCEPT

Accepted Answer

A)  dividend payments.
B)  spending on the military.
C)  electricity for the Capital Building.
D)  letterhead stationery.

Question 6

-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. This indicates that there is

Accepted Answer

A)  a public good which should be produced.
B)  regressive taxation of the product.
C)  a positive externality.
D)  a negative externality.

Question 7

Explain why economists consider it to be one of the economic functions of government to provide a legal system.

Accepted Answer

A market economy relies heavily on contr...

Question 8

If public subsidies for education were eliminated, what would you expect as an outcome in the market for educational services?

Accepted Answer

A)  More students would enroll in school.
B)  The price students pay to attend school would equal the value of an additional unit of education consumed.
C)  There would be no correlation between the price students pay and the cost of providing the educational services.
D)  The quality of education would deteriorate.

Question 9

When does the free-rider problem arise?

Accepted Answer

A)  when someone who benefits from a good does not have to contribute to paying for it
B)  when a firm does not have to advertise, because its customers recommend the product to their friends
C)  when policymakers ignore opportunity costs in making decisions
D)  when production of a good generates pollution

Question 10

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The quantity demanded of medical services is

Accepted Answer

A)  QM.
B)  Q₀.
C)  Qd.
D)  undetermined without more information.

Question 11

Federal antitrust laws in the United States are enforced

Accepted Answer

A)  solely by the Federal Trade Commission.
B)  solely by the Department of Justice.
C)  by the Department of Justice and by the Federal Trade Commission.
D)  by the Department of Commerce.

Question 12

In which of the following ways is the private market sector similar to the public sector in terms of decision making?

Accepted Answer

A)  Prices determine the demand for goods and services in each sector.
B)  There is competition for scarce resource in both sectors.
C)  Both sectors may use a type of "force" if necessary.
D)  Votes by individual voters are basically equal in importance with dollars spent by individuals on goods.

Question 13

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.

Question 14

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. A negative externality existed but has been corrected. Price and quantity will be

Accepted Answer

A)  P₁ and Q₁.
B)  P₂ and Q₂.
C)  P₃ and Q₃.
D)  P₄ and Q₄.

Question 15

All of the following are ways that the government can correct for positive externalities EXCEPT

Accepted Answer

A)  by subsidizing the consumption of the good.
B)  producing the good itself.
C)  by regulation.
D)  by assessing an effluent fee.

Question 16

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.

Question 17

A government action that can help correct positive externalities is

Accepted Answer

A)  a tax on producers of the good that provides external benefits.
B)  a subsidy to consumers of the good that provides external benefits.
C)  an effluent fee charged to producers of the good that provides external benefits.
D)  regulations aimed at reduced production by sellers of the good that provides external benefits.

Question 18

All of the following are major sources for financing public education EXCEPT

Accepted Answer

A)  income taxes.
B)  sales taxes.
C)  property taxes.
D)  government fees.

Question 19

According to your text, one reason for flat or falling achievement scores even in the face of substantially higher education subsidies may be that

Accepted Answer

A)  the additional funds are being siphoned off by dishonest school board members.
B)  some of the funds are going to social services rather than to enhance learning activities.
C)  students are so unmotivated that no amount of spending will ever improve scores.
D)  most parents do not support the schools or their children's educational activities.

Question 20

Market failure means that

Accepted Answer

A)  the strike organized by unionized employees fails to achieve its goal.
B)  too many outdated products are offered for sale in the local supermarket.
C)  there is overallocation or underallocation of resources to certain economic activity.
D)  an unexpectedly harsh winter shuts down a factory.

Exam 5: Public Spending and Public Choice

Market failure means that

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All of the following are ways that the government can correct for positive externalities EXCEPT

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What effect have Medicare subsidies had on the consumption of medical services?

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All of the following are major sources for financing public education EXCEPT

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A government action that can help correct positive externalities is

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If public subsidies for education were eliminated, what would you expect as an outcome in the market for educational services?

Correct Answer
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-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. This indicates that there is

Correct Answer
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Consumers are sovereign when

Correct Answer
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Government outlays include all of the following EXCEPT

Correct Answer
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Federal antitrust laws in the United States are enforced

Correct Answer
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According to your text, one reason for flat or falling achievement scores even in the face of substantially higher education subsidies may be that

Correct Answer
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When does the free-rider problem arise?

Correct Answer
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-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The quantity demanded of medical services is

Correct Answer
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In which of the following ways is the private market sector similar to the public sector in terms of decision making?

Correct Answer
verified

Explain why economists consider it to be one of the economic functions of government to provide a legal system.

Correct Answer
verified
A market economy relies heavily on contr...
View Answer

Inoculations of children against infectious diseases are

Correct Answer
verified

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An example of a public good is

Correct Answer
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Medicare and Social Security are examples of

Correct Answer
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Exam 5: Public Spending and Public Choice

Market failure means that

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All of the following are ways that the government can correct for positive externalities EXCEPT

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What effect have Medicare subsidies had on the consumption of medical services?

Correct AnswerverifiedShow Answer

All of the following are major sources for financing public education EXCEPT

Correct AnswerverifiedShow Answer

A government action that can help correct positive externalities is

Correct AnswerverifiedShow Answer

If public subsidies for education were eliminated, what would you expect as an outcome in the market for educational services?

Correct AnswerverifiedShow Answer

-Refer to the above figure. The market equilibrium quantity is Q₁. Point Q₂ represents the optimal amount of production. This indicates that there is

Correct AnswerverifiedShow Answer

Consumers are sovereign when

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Government outlays include all of the following EXCEPT

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Federal antitrust laws in the United States are enforced

Correct AnswerverifiedShow Answer

According to your text, one reason for flat or falling achievement scores even in the face of substantially higher education subsidies may be that

Correct AnswerverifiedShow Answer

When does the free-rider problem arise?

Correct AnswerverifiedShow Answer

-Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps. The quantity demanded of medical services is

Correct AnswerverifiedShow Answer

In which of the following ways is the private market sector similar to the public sector in terms of decision making?

Correct AnswerverifiedShow Answer

Explain why economists consider it to be one of the economic functions of government to provide a legal system.

Correct AnswerverifiedA market economy relies heavily on contr...View AnswerShow Answer

Inoculations of children against infectious diseases are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An example of a public good is

Correct AnswerverifiedShow Answer

Medicare and Social Security are examples of

Correct AnswerverifiedShow Answer

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A market economy relies heavily on contr...
View Answer

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