Econ 202 Chapter 4 Quiz

Which of the following is an example of a public good? None of the choices are correct. Carpooling with your friends. Flood control.

A public good is a good or service for which consumption by one person makes consumption by others impossible

The optimal mix of output may not be produced by an economy because of the existence of a) Underproduction of public goods. b) Internalities. c) Inequity. d) Production possibilities

Which of the following is a merit good? a) Food. b) Local telephone service. c) Cigarettes. d) A computer operating system

The Social Security tax is: a) A regressive tax. b) A proportional tax at low income levels and a progressive tax at higher income levels. c) A progressive tax. d) A proportional tax

Transfer payments are payments to individuals for which nothing is currently rendered in return.

Local property taxes are a: a) Proportional tax because properties are taxed at the same rate regardless of the value. b) Progressive tax because the total tax on housing increases as the price of the house increases. c) Regressive tax because poorer people spend a larger portion of their income on housing. d) Progressive tax because as income increases people tend to buy more expensive houses.

The theory of public choice examines: a) How a policy of laissez faire works to allocate resources. b) How to apply cost-benefit analysis. c) The role of self-interest in public decisions. d) The optimal government intervention to correct market failures

According to the figure above, by how much is the market (a) Overproducing private goods? (b) Underproducing public goods?

(a) Assuming an 8 percent sales tax is levied on all consumption, complete the following table: Instructions: Enter your responses rounded to the nearest whole number and whole percentage. (b) Is the sales tax progressive or regressive?

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

From an economic standpoint, government intervention is justified 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.

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to a) Overproduce goods that yield external benefits and overproduce those that generate external costs. b) Overproduce goods that yield external benefits and underproduce those that generate external costs. c) Underproduce goods that yield external benefits and overproduce those that generate external costs. d) Underproduce goods that yield external benefits and underproduce those that generate external costs.

When market failure occurs, the role of government is to: a) Eliminate markets. b) Push market outcomes closer to the ideal. c) Create an alternative to markets. d) Do nothing

The government's role in limiting smoking in many buildings is justified by considerations of a) Inequity. b) Externalities. c) Market power. d) Government failure.

In general, state and local taxes tend to be a) Regressive. b) Progressive. c) Proportional. d) Flat

If Good X has social demand that is less than market demand, then Good X must be a a) Public good. b) Good with an external cost. c) Good with an external benefit. d) Good suffering from the free-rider problem.

The market will overproduce goods that have external costs because 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.

A natural monopoly is a) An industry that is dominated by a single firm. b) An industry in which one firm can achieve economies of scale over the entire range of market supply. c) An unregulated monopoly. d) A monopoly that always benefits society even when it is unregulated.

Any imperfection in the market mechanism that prevents optimal outcomes is known as a) Market failure. b) Government failure. c) External cost. d) Public cost.

The most desirable combination of output attainable with existing resources, technology, and social values is known as the a) Optimal mix of output. b) Efficient mix of output. c) Attainable mix of output. d) Efficient choice of production.

Air pollution best illustrates a) Market power. b) An externality. c) An inequity. d) Government failure.

A private good 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.

The federal government's role in providing aid to the poor and the aged is justified because of concerns about a) Market power. b) Inequity. c) Macro failure. d) Restricted supply

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

Government failure will likely arise if 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.

Government intervention may be appropriate to correct market outcomes because of a) Externalities. b) Private goods. c) Production possibilities. d) None of the choices are correct.

Which of the following is a merit good? a) Local telephone service. b) Electricity. c) Health care. d) Automobiles.

When there is a decrease in the unemployment rate, 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.

Which of the following is a sound economic reason why the government should subsidize your college education? a) To help the school's monopoly power over private schools. b) It is too expensive. c) There are external benefits associated with education. d) The profit motive would cause the private sector to overproduce education