Chapter 5 Practice Quiz

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Question #1

An effluent fee is more effective when imposed on

A the supplier of the raw material used by the firm.

B the consumer of the product.

C neither the producer nor the consumer of the product.

D the firm or producer of the product which generates pollution.

Question #2

As a share of total national income, government spending generally has

A decreased over the last fifty years.

B increased until ten years ago, and then decreased steadily.

C increased over the last fifty years.

D been constant over the last fifty years.

Question #3

When there is an external cost, the unregulated market

A overproduces the good or service.

B minimizes public welfare.

C reaches the most efficient solution.

D underproduces the good or service.

Question #4

According to your text, one reason for flat or falling achievement scores even in the face of substantially higher education subsidies may be that

A most parents do not support the schools or their children’s educational activities.

B the additional funds are being siphoned off by dishonest school board members.

C students are so unmotivated that no amount of spending will ever improve scores.

D some of the funds are going to social services rather than to enhance learning activities.

Question #5

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

A proportional rule.

B government rule.

C profit rule.

D majority rule.

Question #6

If the government wishes to correct the existence of positive externality, it could

A grant subsidies to producers to reduce supply.

B impose a tax on the producers to stimulate supply.

C grant subsidies to consumers to stimulate demand.

D impose taxes on consumers to stimulate demand.

Question #7

Government spending as a percent of national income

A has been steadily climbing since 1850.

B peaked during the Reagan administration.

C peaked during World War II.

D has been almost constant this century.

Question #8

A government-inhibited good is a good which

A can be consumed by one individual without affecting the consumption of another individual.

B the political process has deemed socially desirable.

C the political process has deemed socially undesirable.

D is not subject to the principle of mutual exclusivity.

Question #9

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

A I only

B Both I and II

C Neither I nor II

D II only

Question #10

A difference between the market and the public sector is that

A government can use force, while the market does not.

B the cost of private goods to society is zero.

C we can only vote in the public sector.

D scarcity exists only in the market sector.

Question #11

A price system is considered to be efficient when

A all resources are allocated to the highest-valued uses.

B firms produce more than what consumers want.

C an underground market develops.

D it fails to have the goods that consumers want.

Question #12

Government payment of a per-unit subsidy for medical care causes

A an increase in the quantity of medical care demanded above the quantity demanded in the absence of the subsidy.

B the market demand curve to shift downward.

C a reduction in the price that providers of medical care receive for each unit of care provided.

D the market supply curve to shift upward.

Question #13

Assume the production of a good gives rise to external benefits. The government may increase efficiency by

A subsidizing consumption of the good.

B taxing production of the good.

C requiring all producers of the good to be licensed.

D imposing taxes on the good.

Question #14

Suppose that a per-unit subsidy is granted to each individual who consumes a product providing external benefits to society at large. Each individuals demand curve will shift ________, and the market demand curve for the product will shift ________.

A to the right; to the left

B to the right; to the right

C to the left; to the right

D to the left; to the left

Question #15

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

A There would be no correlation between the price students pay and the cost of providing the educational services.

B The price students pay to attend school would equal the value of an additional unit of education consumed.

C More students would enroll in school.

D The quality of education would deteriorate.

Question #16

Suppose that the market price of good X equals the firm’s cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?

A Resources are over-allocated in the production of good X.

B Too much of good X is being produced.

C The good is priced too low.

D An external benefit is associated with good X.

Question #17

Government goods are provided to the consumer at a zero price. This means that

A the cost to society is zero.

B people are getting something for nothing.

C the political system is run by proportional rule.

D the cost of the goods is the value of the resources used to produce the good.

Question #18

Which of the following will LEAST likely generate positive external effects to society?

A education

B fast food services

C requiring drivers to undergo periodic eye examinations

D health care

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Chapter 5 Practice Quiz

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