Question 1

The market tends to underproduce public goods because

Accepted Answer

A)   The consumption of a public good by one person prevents the consumption of the same good by another person.
B)   The free-rider dilemma results in exclusive consumption of a good.
C)   It is difficult to measure the benefit of a public good such as national defense.
D)   Joint consumption allows those who do not pay for the good to still benefit from the good.E) All of the above
F) A) and B)

Question 2

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

Question 3

The federal government's role as the provider of national defense is justified by considerations of

Accepted Answer

A)   Inequity.
B)   Public goods.
C)   Private goods.
D)   None of the choices are correct.E) B) and C)
F) All of the above

Question 4

The difference between public goods and private goods rests on technical considerations of exclusion of use and not political philosophy.

Accepted Answer

A) True 
 B)False

Question 5

Public goods are any goods provided by units of local, state, or federal governments.

Accepted Answer

A) True 
 B)False

Question 6

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 D)

Question 7

The market will overproduce goods that have external costs because

Accepted Answer

A)   Producers experience lower costs than society.
B)   Producers experience higher costs than society.
C)   The government is not able to produce these goods.
D)   Producers cannot keep these goods from consumers who do not pay, so they have to produce greater amounts.E) All of the above
F) B) and C)

Question 8

Antitrust activity addresses

Accepted Answer

A)   Market power.
B)   Inequity.
C)   Macro instability.
D)   Public goods.E) B) and C)
F) A) and B)

Question 9

The market tends to underproduce public goods.

Accepted Answer

A) True 
 B)False

Question 10

If the consumption of a good yields external benefits, then

Accepted Answer

A)   The social demand is greater than the market demand.
B)   The social demand is equal to the market demand.
C)   The social demand is less than the market demand.
D)   There is neither social demand nor market demand for the good.E) A) and C)
F) None of the above

Question 11

Fire protection and police protection can be produced more efficiently by the private sector than by the public sector.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

Market power creates a flawed response to an accurate price signal.

Accepted Answer

A) True 
 B)False

Question 14

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) All of the above

Question 15

Using Figure 4.1, assume that point C represents the best possible mix or optimal level of output for this society.If the market fails and produces a suboptimal mix of output, then it could produce at

Accepted Answer

A)   Point A, B, D, or E.
B)   Point D or F.
C)   Point A, B, D, or F.
D)   Point E or F.E) B) and D)
F) B) and C)

Question 16

The central question in determining whether a good is public or private is whether

Accepted Answer

A)   We have the technical capability to exclude nonpayers.
B)   We have the political will to exclude nonpayers.
C)   Free riding is considered immoral.
D)   It is ethical to provide the good.E) A) and D)
F) All of the above

Question 17

Government failure may result from

Accepted Answer

A)   Operational inefficiency by the public sector only.
B)   Misallocation of resources only.
C)   Accurate valuations of benefits but inaccurate valuations of costs.
D)   Outright waste of resources by the public sector or misallocation of resources.E) None of the above
F) B) and D)

Question 18

Social demand is equal to

Accepted Answer

A)   Market demand plus or minus externalities.
B)   Public demand plus or minus externalities.
C)   Tax revenue plus or minus externalities.
D)   Private goods plus or minus externalities.E) All of the above
F) A) and D)

Question 19

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

Question 20

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

Exam 4: The Role of Government

The central question in determining whether a good is public or private is whether

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

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The market tends to underproduce public goods because

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An externality affecting supply can be measured graphically as the

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Government failure may result from

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The difference between public goods and private goods rests on technical considerations of exclusion of use and not political philosophy.

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The federal government's role as the provider of national defense is justified by considerations of

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Using Figure 4.1, assume that point C represents the best possible mix or optimal level of output for this society.If the market fails and produces a suboptimal mix of output, then it could produce at

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Antitrust activity addresses

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Social demand is equal to

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Fire protection and police protection can be produced more efficiently by the private sector than by the public sector.

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The market will overproduce goods that have external costs because

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Market power creates a flawed response to an accurate price signal.

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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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The market tends to underproduce public goods.

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

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

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Public goods are any goods provided by units of local, state, or federal governments.

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Market failure implies that the market mechanism

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If the consumption of a good yields external benefits, then

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