Question 1

Which of the following occurs if government intervention forces the economy inside the production possibilities curve?

Accepted Answer

A)   Market failure.
B)   Government failure.
C)   Externalities.
D)   Income inequality.E) A) and C)
F) B) and C)

Question 2

An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people. On the basis of this information, we can conclude that lotteries function as

Accepted Answer

A)   An income tax.
B)   A progressive tax.
C)   A property tax.
D)   A regressive tax.E) A) and B)
F) All of the above

Question 3

Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If market forces cause society to produce at point C, then

Accepted Answer

A)   There is government failure.
B)   The forces of supply and demand will return society to point B.
C)   Points A and D are unattainable with the given resources and technology.
D)   There is market failure.E) B) and C)
F) A) and D)

Question 4

The market

Accepted Answer

A)   On its own may not always provide the optimal mix of goods and services.
B)   Always provides the optimal mix of goods and services.
C)   Always provides a better mix of goods and services without government intervention than it does with government intervention.
D)   May not produce the optimal mix of output, which is known as government failure.E) A) and C)
F) B) and D)

Question 5

Resources are directed from one industry to another by

Accepted Answer

A)   Changes in market prices.
B)   Market failure.
C)   Government failure.
D)   None of the choices are correct.E) A) and C)
F) C) and D)

Question 6

The Social Security tax is

Accepted Answer

A)   A progressive tax.
B)   A regressive tax.
C)   A proportional tax at low income levels and a regressive tax at higher income levels.
D)   A proportional tax at low income levels and a progressive tax at higher income levels.E) None of the above
F) A) and D)

Question 7

Government intervention in the market

Accepted Answer

A)   Always involves an opportunity cost.
B)   Never involves an opportunity cost because only market activities result in other goods and services being given up.
C)   Does not involve an opportunity cost if market outcomes are improved.
D)   Results in the free-rider dilemma.E) B) and D)
F) B) and C)

Question 8

Which of the following is a sound economic reason why the government should subsidize your college education?

Accepted Answer

A)   To help the school's monopoly power over private schools.
B)   It is too expensive.
C)   There are external benefits associated with education.
D)   The profit motive would cause the private sector to overproduce education.E) B) and C)
F) A) and B)

Question 9

Income transfers directly alter the mix of output and answer the question of WHAT is produced question.

Accepted Answer

A) True 
 B)False

Question 10

The central question in determining whether a good is public or private is whether

Accepted Answer

A)   We have the technical capability to exclude nonpayers.
B)   We have the political will to exclude nonpayers.
C)   Free riding is considered immoral.
D)   It is ethical to provide the good.E) A) and B)
F) A) and D)

Question 11

Government intervention may be appropriate to correct market outcomes because of

Accepted Answer

A)   Externalities.
B)   Private goods.
C)   Production possibilities.
D)   None of the choices are correct.E) B) and D)
F) None of the above

Question 12

The theory of public choice examines

Accepted Answer

A)   How to apply cost-benefit analysis.
B)   The optimal government intervention to correct market failures.
C)   How a policy of laissez faire works to allocate resources.
D)   The role of self-interest in public decisions.E) All of the above
F) None of the above

Question 13

The largest source of federal revenue is the corporate income tax.

Accepted Answer

A) True 
 B)False

Question 14

Government failure will likely arise if

Accepted Answer

A)   There are no valuation problems.
B)   Public services have reliable market prices.
C)   Government officials attempt to maximize their own utility.
D)   The free-rider problem occurs.E) A) and B)
F) A) and C)

Question 15

The free-rider dilemma occurs in the provision of public goods because an individual can realize the benefits of someone else's purchase (consumption) of a public good.

Accepted Answer

A) True 
 B)False

Question 16

In the cost-benefit analysis of public goods, the benefits

Accepted Answer

A)   Can be accurately measured using the market price of the public good.
B)   Can be accurately measured by ballot box economics.
C)   Are more easily estimated than the costs.
D)   Can be only roughly estimated using highly subjective techniques.E) A) and B)
F) A) and C)

Question 17

Which of the following explains why flood control is a public good?

Accepted Answer

A)   There are external benefits associated with its consumption.
B)   The private sector usually produces flood control projects.
C)   It is not divisible and therefore cannot be kept from people who do not pay.
D)   Flood control is paid for by taxpayers.E) All of the above
F) B) and D)

Question 18

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to

Accepted Answer

A)   Overproduce goods that yield external benefits and overproduce those that generate external costs.
B)   Overproduce goods that yield external benefits and underproduce those that generate external costs.
C)   Underproduce goods that yield external benefits and overproduce those that generate external costs.
D)   Underproduce goods that yield external benefits and underproduce those that generate external costs.E) C) and D)
F) A) and B)

Question 19

A public good

Accepted Answer

A)   Is any good produced by the government.
B)   Is overproduced by the market.
C)   Causes government failure.
D)   Experiences the free-rider dilemma.E) None of the above
F) B) and D)

Question 20

In general, state and local taxes tend to be

Accepted Answer

A)   Regressive.
B)   Progressive.
C)   Proportional.
D)   Flat.E) None of the above
F) All of the above

Exam 4: The Role of Government

The free-rider dilemma occurs in the provision of public goods because an individual can realize the benefits of someone else's purchase (consumption) of a public good.

Correct AnswerverifiedShow Answer

Which of the following explains why flood control is a public good?

Correct AnswerverifiedShow Answer

Government failure will likely arise if

Correct AnswerverifiedShow Answer

In the cost-benefit analysis of public goods, the benefits

Correct AnswerverifiedShow Answer

The central question in determining whether a good is public or private is whether

Correct AnswerverifiedShow Answer

The Social Security tax is

Correct AnswerverifiedShow Answer

Which of the following occurs if government intervention forces the economy inside the production possibilities curve?

Correct AnswerverifiedShow Answer

A public good

Correct AnswerverifiedShow Answer

In general, state and local taxes tend to be

Correct AnswerverifiedShow Answer

Resources are directed from one industry to another by

Correct AnswerverifiedShow Answer

The theory of public choice examines

Correct AnswerverifiedShow Answer

The largest source of federal revenue is the corporate income tax.

Correct AnswerverifiedShow Answer

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to

Correct AnswerverifiedShow Answer

An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people. On the basis of this information, we can conclude that lotteries function as

Correct AnswerverifiedShow Answer

Government intervention may be appropriate to correct market outcomes because of

Correct AnswerverifiedShow Answer

Using Figure 4.1, suppose that point B represents the optimal mix of output for a society. If market forces cause society to produce at point C, then

Correct AnswerverifiedShow Answer

The market

Correct AnswerverifiedShow Answer

Government intervention in the market

Correct AnswerverifiedShow Answer

Which of the following is a sound economic reason why the government should subsidize your college education?

Correct AnswerverifiedShow Answer

Income transfers directly alter the mix of output and answer the question of WHAT is produced question.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified