Question 1

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) A) and D)
F) B) and C)

Question 2

The economic functions of government include

Accepted Answer

A)  determining prices.
B)  setting wages in the public sector.
C)  protecting property rights.
D)  welfare.E) None of the above
F) A) and C)

Question 3

If U.S.consumers increase their spending on hybrid cars by 60 percent,and 60 percent more hybrid cars are produced,this is known as the

Accepted Answer

A)  majority rule.
B)  proportional rule.
C)  government rule.
D)  profit rule.E) C) and D)
F) B) and D)

Question 4

Which of the following is NOT a transfer payment?

Accepted Answer

A)  Medicare
B)  Social Security retirement payments
C)  Social Security disability payments
D)  spending on national defenseE) A) and C)
F) B) and D)

Question 5

All of the following generate positive externalities EXCEPT

Accepted Answer

A)  public health programs.
B)  lower marginal tax rates.
C)  requiring proof of inoculation before entering college.
D)  requiring proof of inoculation before entering elementary school.E) C) and D)
F) All of the above

Question 6

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

Accepted Answer

A)  state lotteries
B)  telephone service
C)  cable TV programming
D)  national defenseE) B) and C)
F) A) and D)

Question 7

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) B) and D)
F) A) and B)

Question 8

When costs spill over to third parties,there is a(n)

Accepted Answer

A)  cost overrun
B)  excessive competition.
C)  negative externality.
D)  government subsidy.E) A) and B)
F) A) and C)

Question 9

A public museum is an example of a

Accepted Answer

A)  government-sponsored good.
B)  public good.
C)  good which generates a positive externality.
D)  good which generates a negative externality.E) C) and D)
F) All of the above

Question 10

Which of the following does NOT involve transfers in kind?

Accepted Answer

A)  Public housing
B)  Food stamps
C)  Medicare
D)  Salaries of government employeesE) C) and D)
F) A) and B)

Question 11

Examples of transfers-in-kind include

Accepted Answer

A)  tax rebates on both the federal and state levels.
B)  taxes on alcohol and tobacco.
C)  food stamps and public housing.
D)  political advertising.E) None of the above
F) B) and D)

Question 12

Which of the following leads to an underallocation of resources to a specific economic activity?

Accepted Answer

A)  External costs
B)  External benefits
C)  Marginal costs
D)  Effluent benefitsE) B) and C)
F) A) and C)

Question 13

All of the following illustrate how government can correct for positive externalities EXCEPT

Accepted Answer

A)  subsidies.
B)  regulation.
C)  government financing and production.
D)  charging effluent fees.E) A) and C)
F) All of the above

Question 14

An example of a transfer payment is

Accepted Answer

A)  the President's salary.
B)  unemployment insurance benefits.
C)  a payment to a defense contractor.
D)  court costs paid by the defendants in a law suit.E) None of the above
F) A) and D)

Question 15

The purpose of an effluent fee imposed on a firm is

Accepted Answer

A)  to increase output of its product by increasing the resources allocated to production.
B)  to increase output of its product by reducing the resources allocated to production.
C)  to reduce output by increasing production costs thereby reducing resources used.
D)  none of the aboveE) A) and C)
F) A) and B)

Question 16

A fundamental aspect of public goods is that they

Accepted Answer

A)  are just like private goods EXCEPT that everybody wants to consume the same amount.
B)  have positive externalities.
C)  are characterized by the principle of rival consumption.
D)  can be consumed jointly by many people simultaneously.E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A)  A private good
B)  A public good
C)  A product that creates a positive externality
D)  A product that creates a negative externalityE) A) and B)
F) C) and D)

Question 18

A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

Accepted Answer

A)  competition.
B)  excessive competition.
C)  destructive competition.
D)  a market failure.E) A) and B)
F) All of the above

Question 19

A situation in which the market system allocates too many resources to the production of a given activity is known as

Accepted Answer

A)  market allocation.
B)  market failure.
C)  market efficiency.
D)  market breakdown.E) B) and C)
F) A) and C)

Question 20

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 C)
F) A) and B)

Exam 4: Public Spending and Public Choice

A public museum is an example of a

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If U.S.consumers increase their spending on hybrid cars by 60 percent,and 60 percent more hybrid cars are produced,this is known as the

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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 could best be categorized as a public good?

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Which of the following is NOT a transfer payment?

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When costs spill over to third parties,there is a(n)

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Examples of transfers-in-kind include

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

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The purpose of an effluent fee imposed on a firm is

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A fundamental aspect of public goods is that they

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Which of the following leads to an underallocation of resources to a specific economic activity?

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An example of a transfer payment is

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A situation in which the market system allocates too many resources to the production of a given activity is known as

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A situation in which a market economy leads to too few or too many resources going to a particular economic activity is known as

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All of the following generate positive externalities EXCEPT

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

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The economic functions of government include

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Which of the following does NOT involve transfers in kind?

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

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All of the following illustrate how government can correct for positive externalities EXCEPT

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