Question 1

Why is it safe to assume that national defense will always be provided by the government instead of the market?

Accepted Answer

National defense is a public good,which means that consumption by one person does not exclude consumption by other people.This joint consumption creates a dilemma referred to as the free-rider problem.Once national defense is purchased,even those who do not pay for the defense will benefit from it,so no one person is willing to pay for the defense.The government must get involved and provide national defense and other public goods.

Question 2

If you burn garbage in your backyard and the smoke damages a neighbor's house,the damage is considered an externality.

Accepted Answer

A) True 
 B)False

Question 3

Government failure will likely arise if

Accepted Answer

A)  There are no valuation problems.
B)  Public services have reliable market prices.
C)  Government officials attempt to maximize their own utility.
D)  The free-rider problem occurs.E) A) and D)
F) C) and D) C

Question 4

Which of the following is a source of market failure?

Accepted Answer

A)  Private goods.
B)  Market power.
C)  Government intervention.
D)  None of the choices are correct.E) A) and C)
F) A) and B)

Question 5

The market tends to underproduce public goods.

Accepted Answer

A) True 
 B)False

Question 6

The market

Accepted Answer

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

Question 7

Suppose that if your income is $50,000,your tax is $5,000,but if your income is $100,000,your tax is $8,000.Such a tax is

Accepted Answer

A)  Regressive.
B)  Progressive.
C)  Proportional.
D)  An excise tax.E) B) and C)
F) None of the above

Question 8

Micro and macro failures of the marketplace never justify government intervention.

Accepted Answer

A) True 
 B)False

Question 9

A progressive tax system is one in which tax rates rise as incomes rise.

Accepted Answer

A) True 
 B)False

Question 10

Local property taxes are a

Accepted Answer

A)  Regressive tax because poorer people spend a larger portion of their income on housing.
B)  Progressive tax because as income increases people tend to buy more expensive houses.
C)  Progressive tax because the total tax on housing increases as the price of the house increases.
D)  Proportional tax because properties are taxed at the same rate regardless of the value.E) B) and D)
F) None of the above

Question 11

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  False

Question 12

Market failure leads to

Accepted Answer

A)  An equitable distribution of goods and services.
B)  Public goods being underproduced.
C)  The absence of externalities.
D)  Production possibilities.E) A) and D)
F) A) and B)

Question 13

Which of the following is the government most likely to discourage because of the existence of externalities?

Accepted Answer

A)  All goods and services produced by monopolies.
B)  Cars that create an excessive amount of exhaust fumes.
C)  Thermal pollution from a power plant that improves fishing downstream.
D)  Fatty foods that lead to heart disease.E) B) and D)
F) A) and D)

Question 14

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) A) and B)

Question 15

When the economy experiences unemployment,

Accepted Answer

A)  There is government failure.
B)  There is macro instability.
C)  There is micro instability.
D)  No market failure occurs.E) B) and C)
F) A) and D)

Question 16

The optimal mix of output is always the same as the

Accepted Answer

A)  Output that consumers demand.
B)  Most desired combination on a production possibilities curve.
C)  Output that the government provides.D) B) and C)
E) A) and C)

Question 17

From the In the News article titled,"Firefighters Watch as Home Burns to the Ground," Which of the following is true?

Accepted Answer

A)  Fire protection paid for like fire insurance is a public good.
B)  Fire protection paid for like fire insurance is a private good.
C)  Fire protection is always a public good.
D)  None of the choices are correct.E) B) and D)
F) B) and C)

Question 18

When market failure occurs,the role of government is to

Accepted Answer

A)  Eliminate markets.
B)  Push market outcomes closer to the ideal.
C)  Create an alternative to markets.
D)  Do nothing.E) A) and C)
F) A) and B)

Question 19

Which of the following is a merit good?

Accepted Answer

A)  Cigarettes.
B)  Food.
C)  Local telephone service.
D)  A computer operating system.E) A) and D)
F) All of the above

Question 20

Which of the following is the best description of the U.S.tax system?

Accepted Answer

A)  The federal income tax is regressive,but sales,property,and other taxes tend to be progressive.
B)  The U.S.tax system is consistently progressive.
C)  The federal income tax is progressive,but sales,property,and other taxes tend to be regressive.
D)  The U.S. tax system is consistently regressive.E) None of the above
F) A) and D)

Exam 4: The Role of Government

Why is it safe to assume that national defense will always be provided by the government instead of the market?

If you burn garbage in your backyard and the smoke damages a neighbor's house,the damage is considered an externality.

Correct Answer
verified

Government failure will likely arise if

Correct Answer
verified
C

Which of the following is a source of market failure?

Correct Answer
verified

The market tends to underproduce public goods.

Correct Answer
verified

The market

Correct Answer
verified

Suppose that if your income is $50,000,your tax is $5,000,but if your income is $100,000,your tax is $8,000.Such a tax is

Correct Answer
verified

Micro and macro failures of the marketplace never justify government intervention.

Correct Answer
verified

A progressive tax system is one in which tax rates rise as incomes rise.

Correct Answer
verified

Local property taxes are a

Correct Answer
verified

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

Correct Answer
verified
False

Market failure leads to

Correct Answer
verified

Which of the following is the government most likely to discourage because of the existence of externalities?

Correct Answer
verified

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

Correct Answer
verified

When the economy experiences unemployment,

Correct Answer
verified

The optimal mix of output is always the same as the

Correct Answer
verified

From the In the News article titled,"Firefighters Watch as Home Burns to the Ground," Which of the following is true?

Correct Answer
verified

When market failure occurs,the role of government is to

Correct Answer
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Which of the following is a merit good?

Correct Answer
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Which of the following is the best description of the U.S.tax system?

Correct Answer
verified

Exam 4: The Role of Government

Why is it safe to assume that national defense will always be provided by the government instead of the market?

If you burn garbage in your backyard and the smoke damages a neighbor's house,the damage is considered an externality.

Correct AnswerverifiedShow Answer

Government failure will likely arise if

Correct AnswerverifiedC

Which of the following is a source of market failure?

Correct AnswerverifiedShow Answer

The market tends to underproduce public goods.

Correct AnswerverifiedShow Answer

The market

Correct AnswerverifiedShow Answer

Suppose that if your income is $50,000,your tax is $5,000,but if your income is $100,000,your tax is $8,000.Such a tax is

Correct AnswerverifiedShow Answer

Micro and macro failures of the marketplace never justify government intervention.

Correct AnswerverifiedShow Answer

A progressive tax system is one in which tax rates rise as incomes rise.

Correct AnswerverifiedShow Answer

Local property taxes are a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

Market failure leads to

Correct AnswerverifiedShow Answer

Which of the following is the government most likely to discourage because of the existence of externalities?

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

When the economy experiences unemployment,

Correct AnswerverifiedShow Answer

The optimal mix of output is always the same as the

Correct AnswerverifiedShow Answer

From the In the News article titled,"Firefighters Watch as Home Burns to the Ground," Which of the following is true?

Correct AnswerverifiedShow Answer

When market failure occurs,the role of government is to

Correct AnswerverifiedShow Answer

Which of the following is a merit good?

Correct AnswerverifiedShow Answer

Which of the following is the best description of the U.S.tax system?

Correct AnswerverifiedShow Answer

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C

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False

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