Economics 002 - Principles of Economics II » Spring 2021 » Chapter 5 Practice Quiz

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Question #1
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
Question #2
Government goods are provided to the consumer at a zero price. This means that
A.   the political system is run by proportional rule.
B.   people are getting something for nothing.
C.   the cost of the goods is the value of the resources used to produce the good.
D.   the cost to society is zero.
Question #3
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.   Too much of good X is being produced.
B.   Resources are over-allocated in the production of good X.
C.   An external benefit is associated with good X.
D.   The good is priced too low.
Question #4
If public subsidies for education were eliminated, what would you expect as an outcome in the market for educational services?
A.   The price students pay to attend school would equal the value of an additional unit of education consumed.
B.   The quality of education would deteriorate.
C.   More students would enroll in school.
D.   There would be no correlation between the price students pay and the cost of providing the educational services.
Question #5
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 left; to the right
B.   to the right; to the right
C.   to the left; to the left
D.   to the right; to the left
Question #6
Assume the production of a good gives rise to external benefits. The government may increase efficiency by
A.   subsidizing consumption of the good.
B.   imposing taxes on the good.
C.   requiring all producers of the good to be licensed.
D.   taxing production of the good.
Question #7
Government payment of a per-unit subsidy for medical care causes
A.   the market supply curve to shift upward.
B.   the market demand curve to shift downward.
C.   an increase in the quantity of medical care demanded above the quantity demanded in the absence of the subsidy.
D.   a reduction in the price that providers of medical care receive for each unit of care provided.
Question #8
A price system is considered to be efficient when
A.   firms produce more than what consumers want.
B.   an underground market develops.
C.   it fails to have the goods that consumers want.
D.   all resources are allocated to the highest-valued uses.
Question #9
A difference between the market and the public sector is that
A.   government can use force, while the market does not.
B.   we can only vote in the public sector.
C.   the cost of private goods to society is zero.
D.   scarcity exists only in the market sector.
Question #10
Which of the following is a transfer payment? I. Social Security II. Unemployment benefits
A.   I only
B.   Both I and II
C.   II only
D.   Neither I nor II
Question #11
A government-inhibited good is a good which
A.   is not subject to the principle of mutual exclusivity.
B.   can be consumed by one individual without affecting the consumption of another individual.
C.   the political process has deemed socially undesirable.
D.   the political process has deemed socially desirable.
Question #12
Government spending as a percent of national income
A.   has been steadily climbing since 1850.
B.   has been almost constant this century.
C.   peaked during World War II.
D.   peaked during the Reagan administration.
Question #13
If the government wishes to correct the existence of positive externality, it could
A.   grant subsidies to consumers to stimulate demand.
B.   grant subsidies to producers to reduce supply.
C.   impose taxes on consumers to stimulate demand.
D.   impose a tax on the producers to stimulate supply.
Question #14
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.   majority rule.
B.   proportional rule.
C.   profit rule.
D.   government rule.
Question #15
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.   the additional funds are being siphoned off by dishonest school board members.
B.   most parents do not support the schools or their children's educational activities.
C.   some of the funds are going to social services rather than to enhance learning activities.
D.   students are so unmotivated that no amount of spending will ever improve scores.
Question #16
When there is an external cost, the unregulated market
A.   overproduces the good or service.
B.   minimizes public welfare.
C.   underproduces the good or service.
D.   reaches the most efficient solution.
Question #17
As a share of total national income, government spending generally has
A.   increased until ten years ago, and then decreased steadily.
B.   increased over the last fifty years.
C.   decreased over the last fifty years.
D.   been constant over the last fifty years.
Question #18
An effluent fee is more effective when imposed on
A.   the consumer of the product.
B.   neither the producer nor the consumer of the product.
C.   the supplier of the raw material used by the firm.
D.   the firm or producer of the product which generates pollution.

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