Question 1

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

Question 2

Which of the following explains what would happen if public goods were marketed like private goods?

Accepted Answer

A)  Public goods would be underproduced.
B)  Many consumers would want to buy the goods.
C)  Public goods would be overproduced.
D)  Government failure would result.E) B) and C)
F) A) and C)

Question 3

The optimal mix of output is the most desirable combination of output attainable with existing

Accepted Answer

A)  Resources and products.
B)  Resources, technology, and social values.
C)  Resources, government regulations, and technology.
D)  Technology and business decisions.E) A) and D)
F) None of the above

Question 4

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

Question 5

Which of the following is an example of a progressive tax?

Accepted Answer

A)  Social Security payroll tax.
B)  A local sales tax.
C)  The federal income tax.
D)  An excise tax.E) All of the above
F) A) and B)

Question 6

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

Accepted Answer

A)  Inequity.
B)  Internalities.
C)  Public goods.
D)  Production possibilities.E) B) and D)
F) B) and C)

Question 7

Markets will underproduce goods that yield external benefits and overproduce those that generate external costs.

Accepted Answer

A) True 
 B)False

Question 8

Public choice theory emphasizes the role of self-interest in public decision making.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the best example of a government effort to address market failure in relation to the FOR WHOM to produce question?

Accepted Answer

A)  Antitrust policy.
B)  Regulations reducing pollution.
C)  Transfer payments.
D)  The production of goods that allow free riders.E) A) and C)
F) All of the above

Question 10

Using Figure 4.2, suppose point C represents the optimal mix of public and private goods for a society.The market mechanism is likely to result in a mix of output represented by point

Accepted Answer

A)  F because the market mechanism is inefficient.
B)  B because the market mechanism tends to overproduce public goods.
C)  C because the market mechanism is efficient.
D)  D because the market mechanism tends to underproduce public goods.E) A) and B)
F) C) and D)

Question 11

Government intervention can serve to stabilize the macro economy by

Accepted Answer

A)  Reducing inflation and encouraging the equitable distribution of income.
B)  Reducing employment and encouraging economic growth.
C)  Regulating monopolies and encouraging the equitable distribution of output.
D)  Reducing inflation and encouraging economic growth.E) All of the above
F) B) and C)

Question 12

When external costs result from the production of a good,

Accepted Answer

A)  Producers have an incentive to produce too little.
B)  Consumers have an incentive to consume too little.
C)  Both producers and consumers have an incentive to produce and consume too much.
D)  Producers and consumers are not affected.E) None of the above
F) A) and C)

Question 13

Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000.Such a tax is

Accepted Answer

A)  Regressive.
B)  Progressive.
C)  Proportional.
D)  A flat tax.E) B) and C)
F) A) and B)

Question 14

Which of the following is a source of government failure but is not typically an example of market failure?

Accepted Answer

A)  Monopoly.
B)  Externalities.
C)  Inequity.
D)  Waste.E) A) and D)
F) C) and D)

Question 15

Market failure implies that the market mechanism

Accepted Answer

A)  Leads the economy to a point outside the production possibilities curve.
B)  Leads the economy to the wrong mix of output.
C)  Causes shortages or surpluses in the market.
D)  Causes government failure.E) All of the above
F) C) and D)

Question 16

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

Accepted Answer

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 D)
F) B) and C)

Question 17

A tax that is placed on the quantity of the item purchased, such as gallons of it, is called a(n)

Accepted Answer

A)  Income tax.
B)  Property tax.
C)  Excise tax.
D)  None of the choices are correct.E) C) and D)
F) All of the above

Question 18

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

Accepted Answer

A)  Less than 1 percent.
B)  10 percent.
C)  25 percent.
D)  50 percent.E) B) and D)
F) None of the above

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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) A) and D)

Exam 4: The Role of Government

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

Correct AnswerverifiedShow Answer

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

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

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When external costs result from the production of a good,

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Which of the following is the best example of a government effort to address market failure in relation to the FOR WHOM to produce question?

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

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Which of the following is a source of government failure but is not typically an example of market failure?

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Using Figure 4.2, suppose point C represents the optimal mix of public and private goods for a society.The market mechanism is likely to result in a mix of output represented by point

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Public choice theory emphasizes the role of self-interest in public decision making.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Market failure implies that the market mechanism

Correct AnswerverifiedShow Answer

Government intervention can serve to stabilize the macro economy by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The optimal mix of output is the most desirable combination of output attainable with existing

Correct AnswerverifiedShow Answer

A tax that is placed on the quantity of the item purchased, such as gallons of it, is called a(n)

Correct AnswerverifiedShow Answer

Which of the following explains what would happen if public goods were marketed like private goods?

Correct AnswerverifiedShow Answer

Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000.Such a tax is

Correct AnswerverifiedShow Answer

Which of the following is an example of a progressive tax?

Correct AnswerverifiedShow Answer

Markets will underproduce goods that yield external benefits and overproduce those that generate external costs.

Correct AnswerverifiedShow Answer

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