Question 1

State governments receive half of their tax revenue from property taxes.
State governments rely heavily on sales taxes,while cities depend heavily on property taxes.

Accepted Answer

A) True 
 B)False

Question 2

Firms in Colorado dump waste into the Colorado River and as a result,people in California and Mexico cannot use the water.What type of market failure is most likely involved?

Accepted Answer

A)  Inequity.
B)  Public goods.
C)  Externalities.
D)  Market power.

Question 3

A private good

Accepted Answer

A)  Is consumed by one person and excludes consumption by others.
B)  Experiences free riders.
C)  Results in market failure when provided in markets characterized by laissez faire.
D)  Is provided most efficiently by the government.

Question 4

Social demand equals market demand minus externalities when there are external benefits.
Social demand equals market demand minus externalities when there are external costs.

Accepted Answer

A) True 
 B)False

Question 5

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.Social demand is equal to market demand plus externalities if external benefits exist.

Question 6

Which of the following properly ranks the size of tax revenues received by the federal government from highest to lowest?

Accepted Answer

A)  Excise taxes,Social Security payroll taxes,income taxes,and corporate taxes.
B)  Corporate taxes,Social Security payroll taxes,income taxes,and excise taxes.
C)  Income taxes,Social Security payroll taxes,corporate taxes,and excise taxes.
D)  Social Security payroll taxes,excise taxes,corporate taxes,and income taxes.

Question 7

Which of the following is most likely a private good?

Accepted Answer

A)  Cars.
B)  National defense.
C)  Sidewalks.
D)  The administration of justice.

Question 8

In a market economy,producers will produce the goods and services that

Accepted Answer

A)  Producers want to purchase.
B)  Consumers demand.
C)  Consumers need the most.
D)  Optimize producer utility.

Question 9

The most desirable combination of output attainable with existing resources,technology,and social values is known as the

Accepted Answer

A)  Optimal mix of output.
B)  Efficient mix of output.
C)  Optimal mix of production.
D)  Efficient choice of production.

Question 10

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.

Question 11

An externality affecting demand 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)  Height of the social demand curve at all points.
D)  Height of the market demand curve at all points.

Question 12

A proportional tax is one that

Accepted Answer

A)  Rises as income rises.
B)  Falls as income rises.
C)  Is collected voluntarily for specific expenditure purposes.
D)  Collects the same rate on every dollar of income.

Question 13

The development of market power by a firm is considered to be a market failure because firms with market power will

Accepted Answer

A)  Produce more and charge a lower price than what would be socially optimal.
B)  Tend to ignore external costs.
C)  Produce less and charge a higher price than what would be socially optimal.
D)  Not respond to consumer demanD.Market power allows one or more producers to attain discretionary power over the market's response to price signals.Firms may use that discretion to enrich themselves by keeping output low and prices high.

Question 14

Local governments provide law enforcement,which benefits society,but if the costs of law enforcement exceed the benefits,the result is a situation of

Accepted Answer

A)  Market failure.
B)  Efficiency as long as there is some benefit.
C)  Government failure.
D)  Public choice theory.

Question 15

Which of the following is a merit good?

Accepted Answer

A)  Local telephone service.
B)  Electricity.
C)  Health care.
D)  Automobiles.

Question 16

If production in the economy is efficient,then changes in market prices

Accepted Answer

A)  Move us along the perimeter of the production possibilities curve.
B)  Move us to a point above the production possibilities curve.
C)  Move us from a point below the production possibilities curve to a point on the production possibilities curve.
D)  Have no effect on our position on the production possibilities curve.

Question 17

Air pollution best illustrates

Accepted Answer

A)  Market power.
B)  An externality.
C)  An inequity.
D)  Government failure.

Question 18

Using Figure 4.1,suppose that point B represents the optimal mix of output for a society.If market forces cause society to produce at point C,then

Accepted Answer

A)  There is government failure.
B)  The forces of supply and demand will return society to pointB
C)   Points A and D are unattainable with the given resources and technology.
D)  There is market failure.

Question 19

The difference between public goods and private goods rests on technical considerations of exclusion of use and not political philosophy.
The central question between public goods and private goods is whether we have the technical capability to exclude nonpayers.

Accepted Answer

A) True 
 B)False

Question 20

The amendment to the U.S.Constitution that granted the federal government the authority to collect income taxes was the

Accepted Answer

A)  8th.
B)  16th.
C)  26th.
D)  28th.

Exam 4: The Role of Government

A private good

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Which of the following is a merit good?

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Which of the following is most likely a private good?

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The development of market power by a firm is considered to be a market failure because firms with market power will

Correct AnswerverifiedShow Answer

The difference between public goods and private goods rests on technical considerations of exclusion of use and not political philosophy. The central question between public goods and private goods is whether we have the technical capability to exclude nonpayers.

Correct AnswerverifiedShow Answer

The amendment to the U.S.Constitution that granted the federal government the authority to collect income taxes was the

Correct AnswerverifiedShow Answer

Local governments provide law enforcement,which benefits society,but if the costs of law enforcement exceed the benefits,the result is a situation of

Correct AnswerverifiedShow Answer

State governments receive half of their tax revenue from property taxes. State governments rely heavily on sales taxes,while cities depend heavily on property taxes.

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Which of the following properly ranks the size of tax revenues received by the federal government from highest to lowest?

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Air pollution best illustrates

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If the consumption of a good yields external benefits,then

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The free-rider problem

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A proportional tax is one that

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Social demand equals market demand minus externalities when there are external benefits. Social demand equals market demand minus externalities when there are external costs.

Correct AnswerverifiedShow Answer

In a market economy,producers will produce the goods and services that

Correct AnswerverifiedShow Answer

The most desirable combination of output attainable with existing resources,technology,and social values is known as the

Correct AnswerverifiedShow Answer

An externality affecting demand can be measured graphically as the

Correct AnswerverifiedShow Answer

Using Figure 4.1,suppose that point B represents the optimal mix of output for a society.If market forces cause society to produce at point C,then

Correct AnswerverifiedShow Answer

Firms in Colorado dump waste into the Colorado River and as a result,people in California and Mexico cannot use the water.What type of market failure is most likely involved?

Correct AnswerverifiedShow Answer

If production in the economy is efficient,then changes in market prices

Correct AnswerverifiedShow Answer

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