Question 1

A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $2 million to build and serves 200 ships a month. If the shipping in the area increases so that 400 ships pass by a month, the increase in additional costs of providing the light to these new ships is

Accepted Answer

A)  $2 million.
B)  $10,000.
C)  $5,000.
D)  $0.E) A) and D)
F) B) and D)

Question 2

When market failures occur

Accepted Answer

A)  the invisible hand will correct for the market failures.
B)  the price system will correct the market failures.
C)  people will reduce their consumption.
D)  the government can step in to correct the market failure.E) B) and D)
F) B) and C)

Question 3

Markets tend to overallocate resources to the production of a good when

Accepted Answer

A)  there are negative externalities.
B)  there are positive externalities.
C)  there are public goods produced.
D)  equilibrium occurs.E) A) and C)
F) B) and C)

Question 4

What is market failure?
 How can the government correct market failure?

Accepted Answer

Market failure is a situation in which t...

Question 5

Which of the following is NOT an economic function of the U.S. government?

Accepted Answer

A)  promoting competition
B)  providing public goods
C)  promoting price stability
D)  encouraging production of government-inhibited goodsE) C) and D)
F) B) and C)

Question 6

If external benefits are taken into account in the market

Accepted Answer

A)  the demand curve would shift to the left.
B)  the supply curve would shift to the left.
C)  the demand curve would shift to the right.
D)  the supply curve would become vertical.E) A) and D)
F) A) and C)

Question 7

-In the above figure, market equilibrium at point E yields the quantity X. The quantity is the socially optimal quantity. Point E indicates that currently there is

Accepted Answer

A)  a negative externality.
B)  a positive externality.
C)  a public good.
D)  a positive externality with subsidy.E) None of the above
F) A) and B)

Question 8

One way that the government encourages the production of a good with positive externalities is to offer

Accepted Answer

A)  an effluent fee.
B)  a market to pollute.
C)  a subsidy.
D)  a pollution tax.E) C) and D)
F) A) and C)

Question 9

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 D)
F) None of the above

Question 10

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

Question 11

"Second-hand" smoke, an often cited disadvantage of allowing smoking in restaurants, is referred to in economics as a(n)

Accepted Answer

A)  capital good.
B)  externality.
C)  economic cost.
D)  negative investment.E) A) and B)
F) A) and C)

Question 12

Suppose a valley periodically floods. A dam can be built in the river that would prevent the flooding. Explain how flood control provided by building the dam arguably fits the characteristics of a public good.

Accepted Answer

The dam would be indivisible since it mu...

Question 13

List and explain the four key assumptions in the theory of public choice.

Accepted Answer

The key assumptions in the theory of pub...

Question 14

Public elementary and high school education in the United States is provided

Accepted Answer

A)  as a free good.
B)  as a subsidized good.
C)  at the market clearing price.
D)  in an amount less than the equilibrium quantity.E) B) and C)
F) C) and D)

Question 15

The Employment Act of 1946 reflects which one of the following functions of government?

Accepted Answer

A)  providing a legal system
B)  improving economy-wide stabilization
C)  correcting externalities
D)  providing public goodsE) All of the above
F) A) and B)

Question 16

Positive externalities arise when

Accepted Answer

A)  an unprofitable firm is shut down.
B)  a profitable firm is regulated.
C)  tax rates are reduced.
D)  production of a good generates benefits that spill over to third parties.E) A) and D)
F) C) and D)

Question 17

To correct for the underproduction of products with positive externalities, the government must

Accepted Answer

A)  provide the incentives for the private sector to produce and consume the good.
B)  provide tougher regulations on the industry.
C)  increase taxes on the industry.
D)  fine the industry.E) None of the above
F) A) and B)

Question 18

Establishing rules for voter registration is an example of a(n)

Accepted Answer

A)  economic function of government.
B)  political function of government.
C)  public good.
D)  transfer payment.E) A) and D)
F) B) and C)

Question 19

The purpose of an effluent fee is to

Accepted Answer

A)  reduce the amount produced of a good and to raise the market price.
B)  correct for pollution while keeping the price of the good the same as before the correction.
C)  reward people producing externalities.
D)  encourage producers to keep the quantity produced the same while lowering the price.E) A) and B)
F) None of the above

Question 20

A difference between the market and the public sector is that

Accepted Answer

A)  competition exists only in the market sector.
B)  resources are only scarce for the market sector.
C)  decision making is by majority rule in the public sector but not in the market sector.
D)  only the public sector produces private goods.E) B) and C)
F) A) and D)

Exam 5: Public Spending and Public Choice

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

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Which of the following is NOT an economic function of the U.S. government?

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If external benefits are taken into account in the market

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To correct for the underproduction of products with positive externalities, the government must

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The purpose of an effluent fee is to

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Public elementary and high school education in the United States is provided

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What is market failure? How can the government correct market failure?

Correct AnswerverifiedMarket failure is a situation in which t...View AnswerShow Answer

List and explain the four key assumptions in the theory of public choice.

Correct AnswerverifiedThe key assumptions in the theory of pub...View AnswerShow Answer

"Second-hand" smoke, an often cited disadvantage of allowing smoking in restaurants, is referred to in economics as a(n)

Correct AnswerverifiedShow Answer

When market failures occur

Correct AnswerverifiedShow Answer

-In the above figure, market equilibrium at point E yields the quantity X. The quantity is the socially optimal quantity. Point E indicates that currently there is

Correct AnswerverifiedShow Answer

Markets tend to overallocate resources to the production of a good when

Correct AnswerverifiedShow Answer

Positive externalities arise when

Correct AnswerverifiedShow Answer

Suppose a valley periodically floods. A dam can be built in the river that would prevent the flooding. Explain how flood control provided by building the dam arguably fits the characteristics of a public good.

Correct AnswerverifiedThe dam would be indivisible since it mu...View AnswerShow Answer

Establishing rules for voter registration is an example of a(n)

Correct AnswerverifiedShow Answer

A difference between the market and the public sector is that

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A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $2 million to build and serves 200 ships a month. If the shipping in the area increases so that 400 ships pass by a month, the increase in additional costs of providing the light to these new ships is

Correct AnswerverifiedShow Answer

One way that the government encourages the production of a good with positive externalities is to offer

Correct AnswerverifiedShow Answer

An example of a transfer payment is

Correct AnswerverifiedShow Answer

The Employment Act of 1946 reflects which one of the following functions of government?

Correct AnswerverifiedShow Answer

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Market failure is a situation in which t...
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The key assumptions in the theory of pub...
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Correct Answer
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The dam would be indivisible since it mu...
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Correct Answer
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