Question 1

In its most ideal form, a price system allows

Accepted Answer

A)  firms to act in such a way that they eliminate scarcity.
B)  consumers to satisfy all their wants.
C)  resources to move from lower-valued uses to higher-valued uses through voluntary exchange.
D)  government policy makers to allocate resources to the uses which they consider to be in the best interests of society.E) None of the above
F) All of the above

Question 2

The economic problem with Medicare financing is that

Accepted Answer

A)  there is a built-in incentive to provide fewer services by doctors.
B)  there is a built-in incentive to travel to Canada to receive medical services.
C)  the cost of providing services is falling annually.
D)  there is a built-in incentive to consume more services.E) None of the above
F) C) and D)

Question 3

A political function of government is to

Accepted Answer

A)  encourage the consumption of government-sponsored goods.
B)  provide public goods.
C)  correct for externalities.
D)  encourage the workings of the price system.E) A) and D)
F) A) and C)

Question 4

Fred receives a $14,000.00 per year grant by the federal government because he is disabled. This is a

Accepted Answer

A)  demerit good.
B)  transfer payment.
C)  non-rival good.
D)  free rider problem.E) A) and B)
F) C) and D)

Question 5

Which of the following is a benefit of the price system?

Accepted Answer

A)  the existence of positive externalities
B)  the production of public goods
C)  Consumers have what they want since politicians and business managers decide what is to be produced.
D)  the freedom of consumers to decide what they want to purchaseE) A) and B)
F) A) and C)

Question 6

Which of the following often involves positive external benefits?

Accepted Answer

A)  water pollution
B)  drunken driving
C)  inoculation programs
D)  tobacco smokingE) None of the above
F) All of the above

Question 7

Market failure occurs when

Accepted Answer

A)  the price system fails to generate an efficient allocation of resources.
B)  the price system fails to generate an equal distribution of income.
C)  the price system fails to generate an equal distribution of wealth.
D)  the price system allows consumers to make their own decisions.E) All of the above
F) B) and C)

Question 8

Briefly explain why government subsidies are a reason for the declining student performance in public education.

Accepted Answer

This is due to the incentive problems of...

Question 9

When the production of one good spills benefits over to third parties, the government should consider all of the following EXCEPT

Accepted Answer

A)  subsidizing the consumption of the good.
B)  subsidizing the production of the good.
C)  creating tax incentives to encourage more consumption.
D)  taxing the production or consumption of the good.E) None of the above
F) A) and B)

Question 10

Which of the following is best characterized as a public good?

Accepted Answer

A)  a public library
B)  a church
C)  primary education
D)  police protectionE) All of the above
F) B) and C)

Question 11

The legal system provided by the government is necessary for the smooth working of markets because

Accepted Answer

A)  it keeps criminals off of the streets.
B)  it defines and protects property rights.
C)  it is set up in the U.S. constitution.
D)  it ensures that producers maximize their profits.E) All of the above
F) A) and B)

Question 12

Briefly explain the similarities and differences of decision making by the market sector and the public sector.

Accepted Answer

The similarities of the two sectors incl...

Question 13

Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as

Accepted Answer

A)  transfer payments.
B)  government-sponsored payments.
C)  government-inhibited payments.
D)  black market payments.E) All of the above
F) A) and B)

Question 14

Recipients of Medicare tend to demand a greater quantity of low-value, high-cost services because

Accepted Answer

A)  the services are readily available.
B)  recipients are coerced into demanding such services.
C)  the government mandates that they demand such services.
D)  the services are heavily subsidized.E) A) and B)
F) All of the above

Question 15

Which of the following statements is TRUE?

Accepted Answer

A)  Government spending as a percent of total national income has continuously decreased since the 1950s.
B)  Transfer payments are money payments made by the government for which no goods or services are currently received.
C)  Education is the largest category of federal government expenditures.
D)  Transfers in kind include Welfare, Social Security, and unemployment insurance benefits.E) None of the above
F) A) and B)

Question 16

An important assumption in the theory of public choice is that

Accepted Answer

A)  individuals will act within the political process to maximize their individual well-being.
B)  individuals will act within the political process to maximize their collective well-being.
C)  individuals will only operate outside the political process when their well-being is involved.
D)  scarcity does not exist in the government sector.E) C) and D)
F) A) and B)

Question 17

Market failures

Accepted Answer

A)  are usually caused by government interference in the economy.
B)  prevent the price system from attaining economic efficiency.
C)  encourage people to purchase more of a good than they really want.
D)  encourage businesses to produce more of a good than they really want to.E) C) and D)
F) A) and D)

Question 18

Private schools are able to exclude students from attending classes they offer unless students have been accepted and paid tuition and fees. This suggests that education is

Accepted Answer

A)  subject to the principle of rival consumption.
B)  subject to the free-rider problem.
C)  not subject to the exclusion principle.
D)  a public good.E) B) and C)
F) A) and C)

Question 19

Private goods are goods

Accepted Answer

A)  that carry a price.
B)  for which price is greater than zero.
C)  for which the more one person has the less is available for someone else.
D)  that are produced by the government.E) A) and B)
F) A) and C)

Question 20

Which of the following is an example of a public good?

Accepted Answer

A)  flood control
B)  post office
C)  health care
D)  welfareE) C) and D)
F) All of the above

Exam 5: Public Spending and Public Choice

An important assumption in the theory of public choice is that

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The economic problem with Medicare financing is that

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A political function of government is to

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In its most ideal form, a price system allows

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Which of the following is a benefit of the price system?

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Briefly explain the similarities and differences of decision making by the market sector and the public sector.

Correct AnswerverifiedThe similarities of the two sectors incl...View AnswerShow Answer

Which of the following statements is TRUE?

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Fred receives a $14,000.00 per year grant by the federal government because he is disabled. This is a

Correct AnswerverifiedShow Answer

Which of the following is best characterized as a public good?

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Which of the following is an example of a public good?

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Market failures

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Recipients of Medicare tend to demand a greater quantity of low-value, high-cost services because

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Which of the following often involves positive external benefits?

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Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as

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Market failure occurs when

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Private goods are goods

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The legal system provided by the government is necessary for the smooth working of markets because

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Briefly explain why government subsidies are a reason for the declining student performance in public education.

Correct AnswerverifiedThis is due to the incentive problems of...View AnswerShow Answer

When the production of one good spills benefits over to third parties, the government should consider all of the following EXCEPT

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Private schools are able to exclude students from attending classes they offer unless students have been accepted and paid tuition and fees. This suggests that education is

Correct AnswerverifiedShow Answer

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The similarities of the two sectors incl...
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This is due to the incentive problems of...
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