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Local governments provide law enforcement,which benefits society,but if the costs of law enforcement exceed the benefits,the result is a situation of


A) Market failure.
B) Efficiency as long as there is some benefit.
C) Government failure.
D) Public choice theory.

E) None of the above
F) C) and D)

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Generally speaking,monopolies


A) Have great productive efficiency and are always beneficial to society.
B) May be beneficial to society if they are allowed to act like monopolies without government interference.
C) May be beneficial to society if they are natural monopolies and are regulated.
D) Are never beneficial to society.

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

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A World View article titled "Secondhand Smoke Kills 600,000 People a Year: Study" implies the harm caused to nonsmokers is


A) An example of a public good.
B) Included in the market price of cigarettes.
C) An example of externality costs.
D) An example of government failure.

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

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A private good


A) Is consumed by one person and excludes consumption by others.
B) Experiences free riders.
C) Results in market failure when provided in markets characterized by laissez faire.
D) Is provided most efficiently by the government.

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

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Social demand equals market demand plus externalities when there are positive external benefits.

A) True
B) False

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Which of the following is most likely a private good?


A) Bicycles.
B) National defense.
C) Sidewalks.
D) The administration of justice.

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

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Which of the following properly ranks the size of tax revenues received by the federal government from highest to lowest?


A) Excise taxes,Social Security payroll taxes,income taxes,and corporate taxes.
B) Corporate taxes,Social Security payroll taxes,income taxes,and excise taxes.
C) Income taxes,Social Security payroll taxes,corporate taxes,and excise taxes.
D) Social Security payroll taxes,excise taxes,corporate taxes,and income taxes.

E) C) and D)
F) B) and D)

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The government's role in limiting smoking in many buildings is justified by considerations of


A) Inequity.
B) Externalities.
C) Market power.
D) Government failure.

E) None of the above
F) B) and C)

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A "free rider" is an individual who reaps


A) Indirect benefits from someone else's purchase of a public good.
B) Indirect benefits from someone else's purchase of a private good.
C) Direct benefits from someone else's purchase of a public good.
D) Direct benefits from someone else's purchase of a private good.

E) C) and D)
F) A) and D)

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According to cost-benefit analysis,a government project should be undertaken as long as the


A) Opportunity costs exceed the welfare benefits.
B) Benefits exceed the opportunity costs.
C) Benefits equal the costs.
D) Voters approve the project.

E) A) and B)
F) All of the above

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Government intervention that fails to improve economic outcomes is known as market failure.

A) True
B) False

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Which of the following statements is inaccurate?


A) There is substantial agreement about how and when markets fail.
B) There is substantial agreement about whether government improves market outcomes.
C) Voters are quick to blame government meddling for many economic woes.
D) Ideally,the market mechanism will lead an economy to the optimal mix of output.

E) B) and D)
F) None of the above

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The market


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 D)
F) A) and C)

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As long as a public sector activity will generate benefits regardless of the costs,the activity should definitely be undertaken.

A) True
B) False

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One In the News article titled "Perceptions of Government Failure" indicates that people think that the government is not very trustworthy when it comes to solving domestic issues.If this is true,this is an example of


A) The free-rider dilemma.
B) Market failure.
C) The problem of externalities.
D) Government failure.

E) None of the above
F) A) and B)

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What is government failure,and how would it be demonstrated on a production possibilities curve?

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Government failure occurs when governmen...

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Which of the following is possible when the market fails?


A) The mix of goods and services is on the production possibilities curve.
B) It is impossible for government intervention to improve the mix of goods and services.
C) The mix of goods and services is at the correct point on the production possibilities curve.
D) The mix of goods and services is the optimal mix.

E) B) and C)
F) None of the above

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Which of the following scenarios would support the theory of public choice?


A) The governor of the state vetoes a highway bill even though the highway would enhance the value of property he or she owns.
B) The local police chief fails to give the mayor a speeding ticket because the mayor might fire him.
C) The president of Colombia goes after drug traffickers despite death threats and the offer of bribes that could make him a rich man.
D) A college president eliminates wasteful departments and programs even though this will shorten her tenure and her political future.

E) C) and D)
F) B) and C)

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Approximately what percentage of state and local expenditures do bond referenda account for?


A) Less than 1 percent.
B) 10 percent.
C) 25 percent.
D) 50 percent.

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

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The optimal mix of output may not be produced by an economy because of the existence of


A) Inequity.
B) Internalities.
C) Underproduction of public goods.
D) Production possibilities.

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

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