Question 1

Which of the following is NOT an example of a transfer payment?

Accepted Answer

A)  unemployment compensation
B)  food stamps
C)  government salaries
D)  Social Security benefitsE) A) and C)
F) C) and D)

Question 2

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

Question 3

In a free market system,competition generates economic efficiency only when

Accepted Answer

A)  individuals take into account the full opportunity cost of their actions.
B)  consumers are motivated by a sense of the greater good,not their own self-interest.
C)  firms are motivated by a sense of the greater good,not their desire for profit.
D)  economic decisions are taken out the hands of individuals and placed in the hands of government officials.E) A) and B)
F) None of the above

Question 4

Suppose that the XYZ industry produces a product that results in negative external costs to society.This information suggests that

Accepted Answer

A)  resources are under-allocated to the industry.
B)  the equilibrium market price of the product includes the external costs borne by society.
C)  resources are over-allocated to the industry.
D)  at the market price,quantity demanded is less than quantity supplied.E) A) and B)
F) All of the above

Question 5

Over the past 40 years,there has been an increase in spending on public education without a significant increase in student performance.One explanation given by economists on why student performance has not improved is that

Accepted Answer

A)  not enough funds have been spent on public education.
B)  schools are providing high-priced services that are not valued by parents.
C)  the quantity of educational services has not increased beyond the pre-subsidy equilibrium.
D)  too much competition for educational services.E) A) and B)
F) A) and C) B

Question 6

Which of the following statements is true about the difference between a public and private good?

Accepted Answer

A)  Both public and private goods are owned by individuals but public goods can be shared while private goods cannot be shared.
B)  The government produces private goods while corporations produce public goods.
C)  Consumption of a private good by one person reduces the amount available for others while the consumption of a public good does not reduce the amount available for others.
D)  Resources are used to produce private goods but are not used to produce public goods.E) None of the above
F) A) and C)

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

Question 8

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) C) and D)

Question 9

Medicare is an example of a third-party payment for medical services that

Accepted Answer

A)  causes providers to supply less of medical services than they would without the payment.
B)  causes buyers to consume more of medical services than they would without the payment.
C)  does not cause any change in the equilibrium position for medical services which existed without the subsidy.
D)  causes the price of medical services to rise for the consumer once the payment is provided.E) A) and D)
F) A) and C)

Question 10

A government-inhibited good is a good which

Accepted Answer

A)  is not subject to the principle of mutual exclusivity.
B)  the political process has deemed socially undesirable.
C)  can be consumed by one individual without affecting the consumption of another individual.
D)  the political process has deemed socially desirable.E) None of the above
F) All of the above

Question 11

If public subsidies for education were eliminated,what would you expect as an outcome in the market for educational services?

Accepted Answer

A)  More students would enroll in school.
B)  The price students pay to attend school would equal the value of an additional unit of education consumed.
C)  There would be no correlation between the price students pay and the cost of providing the educational services.
D)  The quality of education would deteriorate.E) A) and B)
F) C) and D)

Question 12

Which of the following is a transfer payment?
I.Social Security
II.Unemployment benefits

Accepted Answer

A)  I only
B)  II only
C)  Both I and II
D)  Neither I nor IIE) B) and D)
F) A) and D)

Question 13

What are the voting rules followed by the political system as opposed to the market system?

Accepted Answer

In the political system,one person gets ...

Question 14

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 15

Explain why an external cost leads to an over-allocation of resources to the production of a good.

Accepted Answer

An external cost is the cost associated ...

Question 16

Which of the following is NOT an example of an externality?

Accepted Answer

A)  A bread company emits a wonderful aroma in the air that makes people smile.
B)  The neighbor's wind chimes interfere with your sleep.
C)  A firm fires 500 people.
D)  Cancer-causing chemicals are dumped into the drinking water supply of a city.E) B) and D)
F) B) and C)

Question 17

Subsidies paid to the health care industry for Medicare patients are paid by

Accepted Answer

A)  Congress.
B)  the Teamsters union.
C)  current taxes.
D)  the Federal Reserve.E) A) and B)
F) B) and C) C

Question 18

One reason the Medicare system costs so much is

Accepted Answer

A)  the amount of medical services is determined by the equilibrium of supply and demand.
B)  the supply of medical services does not respond to price changes.
C)  supply and demand analysis does not apply.
D)  beneficiaries are entitled to receive services for which the per-unit cost exceeds their own personal out-of-pocket payment.E) None of the above
F) A) and D)

Question 19

When market failures occur,

Accepted Answer

A)  the invisible had 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) A) and B)
F) C) and D)

Question 20

Which of the following is a major reason why the Medicare program is in such financial trouble?

Accepted Answer

A)  Workers are not paying enough into the program.
B)  The government set reimbursement rates too high.
C)  Because medical services are subsidized by the government,both consumption by the elderly and the cost of services have increased.
D)  There is a shortage of medical school applicants.E) A) and C)
F) A) and B)

Exam 4: Public Spending and Public Choice

Which of the following is NOT an example of a transfer payment?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a free market system,competition generates economic efficiency only when

Correct AnswerverifiedShow Answer

Suppose that the XYZ industry produces a product that results in negative external costs to society.This information suggests that

Correct AnswerverifiedShow Answer

Over the past 40 years,there has been an increase in spending on public education without a significant increase in student performance.One explanation given by economists on why student performance has not improved is that

Correct AnswerverifiedB

Which of the following statements is true about the difference between a public and private good?

Correct AnswerverifiedShow Answer

Market failure occurs when

Correct AnswerverifiedA

In its most ideal form,a price system allows

Correct AnswerverifiedShow Answer

Medicare is an example of a third-party payment for medical services that

Correct AnswerverifiedShow Answer

A government-inhibited good is a good which

Correct AnswerverifiedShow Answer

If public subsidies for education were eliminated,what would you expect as an outcome in the market for educational services?

Correct AnswerverifiedShow Answer

Which of the following is a transfer payment? I.Social Security II.Unemployment benefits

Correct AnswerverifiedShow Answer

What are the voting rules followed by the political system as opposed to the market system?

Correct AnswerverifiedIn the political system,one person gets ...View AnswerShow Answer

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

Explain why an external cost leads to an over-allocation of resources to the production of a good.

Correct AnswerverifiedAn external cost is the cost associated ...View AnswerShow Answer

Which of the following is NOT an example of an externality?

Correct AnswerverifiedShow Answer

Subsidies paid to the health care industry for Medicare patients are paid by

Correct AnswerverifiedC

One reason the Medicare system costs so much is

Correct AnswerverifiedShow Answer

When market failures occur,

Correct AnswerverifiedShow Answer

Which of the following is a major reason why the Medicare program is in such financial trouble?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In the political system,one person gets ...
View Answer

Correct Answer
verified
This is due to the incentive problems of...
View Answer

Correct Answer
verified
An external cost is the cost associated ...
View Answer

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified