Question 1

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

Accepted Answer

A)  There is an increase in injuries to pedestrians caused by accidents resulting from electronic billboards distracting drivers.
B)  The opening of a new shopping mall increases the business of nearby restaurants.
C)  A consumer pays a higher price than another consumer does for the same product.
D)  Consumers pay a sales tax in addition to the price of a product.E) A) and D)
F) A) and C)

Question 2

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 new hotel ruins the view of the ocean for a few homeownersE) None of the above
F) A) and B)

Question 3

One reason the Medicare system costs so much is

Accepted Answer

A)  the amount of medical services is determined by the equilibrium of supply and demand.
B)  the supply of medical services does not respond to price changes.
C)  supply and demand analysis does not apply.
D)  beneficiaries are entitled to receive services for which the per-unit cost exceeds their own personal out-of-pocket payment.E) A) and C)
F) None of the above

Question 4

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.E) A) and C)
F) All of the above

Question 5

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

Accepted Answer

A)  less than the price that producers receive for providing care.
B)  greater than the price that producers receive for providing care.
C)  greater than the market clearing price without the subsidy.
D)  equal to zero.E) C) and D)
F) All of the above

Question 6

Which of the following could best be categorized as a public good?

Accepted Answer

A)  an apartment in a public housing project
B)  a pumpkin pie
C)  public fireworks
D)  a race trackE) A) and D)
F) A) and C)

Question 7

Social Security and Medicare are clear examples of

Accepted Answer

A)  capitalism.
B)  market-determined services.
C)  market failures and externalities.
D)  governmental intervention in the market.E) A) and B)
F) A) and C)

Question 8

Suppose that the market price of good X 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 X.
C)  Resources are over-allocated in the production of good X.
D)  Too much of good X is being produced.E) B) and C)
F) B) and D)

Question 9

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

Accepted Answer

A)  regulatory laws.
B)  antitrust laws.
C)  tort laws.
D)  zoning laws.E) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

A)  taxes.
B)  regulation.
C)  lobbying.
D)  subsidies.E) A) and B)
F) All of the above

Question 11

Pollution is caused by a market failure, in an industry in which there is

Accepted Answer

A)  unemployment.
B)  an over-allocation of resources in production.
C)  excess demand.
D)  excessive cost borne by the firm.E) A) and B)
F) A) and C)

Question 12

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

Question 13

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Accepted Answer

A)  a market demand curve to the left of the market demand curve for which the consumers take the external benefit into account.
B)  a market demand curve to the right of the market demand curve for which the consumers take the external benefit into account.
C)  a market demand curve the same as the market demand curve for which the consumers take the external benefit into account.
D)  the absence of a market demand curve.E) C) and D)
F) B) and D)

Question 14

When a person throws a cigarette out of a car window and starts a brush fire, this is

Accepted Answer

A)  an example of an external benefit.
B)  an example of an external cost.
C)  an example of a public good.
D)  an example of market power.E) B) and D)
F) A) and D)

Question 15

If a government determines that the provision of services by museums should be encouraged, then this means that the government has judged museum displays to be a(n)

Accepted Answer

A)  government-sponsored good.
B)  exclusive good.
C)  government-inhibited good.
D)  public good.E) B) and C)
F) A) and B)

Question 16

An effluent fee

Accepted Answer

A)  is a reward to companies using production methods that create positive externalities.
B)  is also called a pollution subsidy.
C)  gives a firm the right to pollute if it pays a tax on what it discharges.
D)  is intended to influence the market by increasing supply and decreasing price.E) B) and D)
F) C) and D)

Question 17

One characteristic of a public good is that it

Accepted Answer

A)  is available for consumption by only a few individuals at any particular time.
B)  always eliminates the free-rider problem.
C)  can be consumed simultaneously by many individuals.
D)  can be easily subdivided into small units.E) None of the above
F) All of the above

Question 18

What is market failure? How can the government correct market failure?

Accepted Answer

Market failure is a situation in which t...

Question 19

-If the government wishes to correct the existence of positive externality, it could

Accepted Answer

A)  grant subsidies to consumers to stimulate demand.
B)  impose a tax on the producers to stimulate supply.
C)  impose taxes on consumers to stimulate demand.
D)  grant subsidies to producers to reduce supply.E) A) and B)
F) B) and C)

Question 20

A firm that has a great deal of control over the price of a good is said

Accepted Answer

A)  to function in a black market.
B)  to create a tax incidence.
C)  to have monopoly power.
D)  to be in an antitrust position.E) A) and D)
F) None of the above

Exam 5: Public Spending and Public Choice

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

Correct AnswerverifiedShow Answer

In graphical form, the presence of an external benefit that is ignored by consumers can be shown as

Correct AnswerverifiedShow Answer

A firm that has a great deal of control over the price of a good is said

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

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

Correct AnswerverifiedShow Answer

One reason the Medicare system costs so much is

Correct AnswerverifiedShow Answer

When a person throws a cigarette out of a car window and starts a brush fire, this is

Correct AnswerverifiedShow Answer

Suppose that the market price of good X 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?

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One characteristic of a public good is that it

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Inoculations of children against infectious diseases are

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-If the government wishes to correct the existence of positive externality, it could

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Social Security and Medicare are clear examples of

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What is market failure? How can the government correct market failure?

Correct AnswerverifiedMarket failure is a situation in which t...View AnswerShow Answer

An effluent fee

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

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If a government determines that the provision of services by museums should be encouraged, then this means that the government has judged museum displays to be a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Government payment of a per-unit subsidy for medical care causes the out-of-pocket price that consumers pay for care to be

Correct AnswerverifiedShow Answer

Pollution is caused by a market failure, in an industry in which there is

Correct AnswerverifiedShow Answer

Which of the following could best be categorized as a public good?

Correct AnswerverifiedShow Answer

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Market failure is a situation in which t...
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