Question 1

In the United States, direct expenditures for governments between 1933 and 1943

Accepted Answer

A)  Trended up for state and local governments and down for the federal government.
B)  Trended down for state and local governments and up for the federal government.
C)  Trended down for all governments.
D)  Trended up for all governments.E) B) and C)
F) B) and D)

Question 2

From an economic standpoint, government intervention is justified

Accepted Answer

A)  When the market mechanism fails to achieve the optimal mix of output.
B)  Because the government will encourage the production of private goods.
C)  Because the government can increase the level of market power of private businesses.
D)  When the private sector is larger than public sector.E) A) and D)
F) A) and C)

Question 3

The term market power refers to

Accepted Answer

A)  A firm's ability to eliminate free riders.
B)  A firm's ability to alter the market price or quantity of a good or service.
C)  The government's ability to change market outcomes.
D)  The government's authority to tax businesses.E) A) and C)
F) A) and D)

Question 4

Income transfers directly alter the mix of output and answer the question of WHAT is produced question.

Accepted Answer

A) True 
 B)False

Question 5

An externality affecting supply can be measured graphically as the

Accepted Answer

A)  Horizontal distance between the market demand curve and the social demand curve.
B)  Vertical distance between the market demand curve and the social demand curve.
C)  Horizontal distance between the market supply curve and the social supply curve.
D)  Vertical distance between the market supply curve and the social supply curve.E) None of the above
F) B) and D)

Question 6

State governments receive half of their tax revenue from property taxes.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following produces external benefits?

Accepted Answer

A)  Garbage dumped in the Atlantic Ocean.
B)  The inoculation of college students against the flu.
C)  Passive smoke in a public building.
D)  All of the choices are correct.E) A) and C)
F) B) and C)

Question 8

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...

Question 9

The free-rider problem

Accepted Answer

A)  Arises from the ability to exclude an individual from the benefits of someone else's purchase.
B)  Is a government failure resulting from consumption of private goods.
C)  Reflects the inability to exclude an individual from the benefits of someone else's purchase.
D)  Means that the market mechanism is the most efficient way to produce public goods.E) B) and C)
F) A) and C)

Question 10

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

Accepted Answer

A)  Carpooling with your friends.
B)  Flood control.
C)  Social Security payments.
D)  None of the choices are correct.E) B) and C)
F) A) and C)

Question 11

An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people.On the basis of this information, we can conclude that lotteries function as

Accepted Answer

A)  An income tax.
B)  A progressive tax.
C)  A property tax.
D)  A regressive tax.E) B) and C)
F) A) and D)

Question 12

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 C)
F) B) and C)

Question 13

The market mix of output and the optimal mix of output are always the same.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following explains why flood control is a public good?

Accepted Answer

A)  There are external benefits associated with its consumption.
B)  The private sector usually produces flood control projects.
C)  It is not divisible and therefore cannot be kept from people who do not pay.
D)  Flood control is paid for by taxpayers.E) A) and D)
F) C) and D)

Question 15

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)  Foods that taste good.E) None of the above
F) A) and D)

Question 16

The theory of public choice

Accepted Answer

A)  Examines why the public rejects so many bond referendums.
B)  Emphasizes the self-interest of decision makers and voters.
C)  Examines how a policy of laissez faire works to allocate resources.
D)  Explains the selfless pursuit of public goals by public servants.E) B) and C)
F) C) and D)

Question 17

Which of the following scenarios would support the theory of public choice?

Accepted Answer

A)  The governor of the state vetoes a highway bill even though the highway would enhance the value of property he or she owns.
B)  The local police chief fails to give the mayor a speeding ticket because the mayor might fire him.
C)  The president of Colombia goes after drug traffickers despite death threats and the offer of bribes that could make him a rich man.
D)  A college president eliminates wasteful departments and programs even though this will shorten her tenure and her political future.E) A) and D)
F) None of the above

Question 18

Which of the following occurs when the economy experiences inflation?

Accepted Answer

A)  Government failure.
B)  Micro instability.
C)  Macro instability.
D)  The free-rider problem.E) A) and B)
F) All of the above

Question 19

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) C) and D)
F) B) and D)

Question 20

When there is a decrease in the unemployment rate,

Accepted Answer

A)  The economy moves closer to the production possibilities curve.
B)  The production possibilities curve shifts outward.
C)  The production possibilities curve shifts inward.
D)  There is a movement along the production possibilities curve.E) B) and C)
F) A) and B)

Exam 4: The Role of Government

The theory of public choice

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Local property taxes are a

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

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

Correct AnswerverifiedNational defense is a public good, which...View AnswerShow Answer

An In the News article titled "Perpetuating Poverty: Lotteries Prey on the Poor" reports that poor people spend a larger percentage of their income on government-promoted gambling than do rich people.On the basis of this information, we can conclude that lotteries function as

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Government failure will likely arise if

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From an economic standpoint, government intervention is justified

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The market mix of output and the optimal mix of output are always the same.

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Which of the following occurs when the economy experiences inflation?

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

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The free-rider problem

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Income transfers directly alter the mix of output and answer the question of WHAT is produced question.

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Which of the following produces external benefits?

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The term market power refers to

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In the United States, direct expenditures for governments between 1933 and 1943

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Which of the following scenarios would support the theory of public choice?

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An externality affecting supply can be measured graphically as the

Correct AnswerverifiedShow Answer

Which of the following explains why flood control is a public good?

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When there is a decrease in the unemployment rate,

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State governments receive half of their tax revenue from property taxes.

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National defense is a public good, which...
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