Deck 4: The Role of Government

Question 1

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.

Answer 1

A

Question 2

Market failure implies that the market mechanism

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.

Answer 2

B

Question 3

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.

Answer 3

A

Question 4

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.

Question 5

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.

Question 6

Resources are directed from one industry to another by

A)Changes in market prices.
B)Market failure.
C)Government failure.
D)None of the choices are correct.

Question 7

The optimal mix of output is the most desirable combination of output attainable with existing

A)Resources and products.
B)Resources,technology,and social values.
C)Resources,government regulations,and technology.
D)Technology and business decisions.

Question 8

The optimal mix of output is always the same as the

A)Output that consumers demand.
B)Most desired combination on a production possibilities curve.
C)Output that the government provides.
D)Output that producers produce.

Question 9

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.

Question 10

Which of the following is a source of market failure?

A)Private goods.
B)Market power.
C)Government intervention.
D)None of the choices are correct.

Question 11

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

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

Question 12

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

A)Move us along the edge 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 13

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

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

Question 14

The market

A)On its own may not always provide the optimal mix of goods and services.
B)Always provides the optimal mix of goods and services.
C)Always provides a better mix of goods and services without government intervention than it does with government intervention.
D)May not produce the optimal mix of output,which is known as government failure.

Question 15

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

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

Question 16

From an economic standpoint,government intervention may be justified

A)If the market mechanism fails to achieve the optimal mix of output.
B)Because the government can 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.

Question 17

Market failure may lead to

A)An equitable distribution of goods and services.
B)Public goods being underproduced.
C)The absence of externalities.
D)Production possibilities.

Question 18

The term market mechanism refers to

A)The use of market prices and sales to signal desired output.
B)Resource allocation based on a production possibilities curve.
C)Resource allocation based on consumer needs.
D)Government laws and regulations concerning how the market should operate.

Question 19

Which of the following is possible when the market fails?

A)The mix of goods and services is on the production possibilities curve.
B)It is impossible for government intervention to improve the mix of goods and services.
C)The mix of goods and services is at the correct point on the production possibilities curve.
D)The mix of goods and services is the optimal mix.

Question 20

The optimal mix of output may not be produced by an economy because of the existence of

A)Inequity.
B)Internalities.
C)Underproduction of public goods.
D)Production possibilities.

Question 21

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

A)We have the technical capability to exclude nonpayers from consumption.
B)We have the political will to exclude nonpayers from consumption.
C)Free riding is considered immoral.
D)The good is provided by the government.

Question 22

The market tends to underproduce public goods because

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.

Question 23

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

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.

Question 24

Which of the following explains why flood control is a public good?

A)There are external benefits associated with its consumption.
B)The private sector usually produces flood control projects.
C)It is not divisible and therefore cannot be kept from people who do not pay.
D)Flood control is paid for by taxpayers.

Question 25

If public goods were marketed like private goods,then

A)Public goods would be efficiently produced.
B)People would avoid paying for these goods.
C)Market failure would not occur.
D)Society would be closer to achieving the optimal mix of output.

Question 26

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.

Question 27

Air pollution best illustrates

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

Question 28

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

A)Inequity.
B)Public goods.
C)Private goods.
D)None of the choices are correct.

Question 29

Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them.What type of market failure is involved?

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

Question 30

Which of the following is consumed jointly?

A)A can of Coke.
B)A doughnut.
C)A seat on an airplane.
D)A missile shield.

Question 31

A "free rider" is an individual who reaps

A)Indirect benefits from someone else's purchase of a public good.
B)Indirect benefits from someone else's purchase of a private good.
C)Direct benefits from someone else's purchase of a public good.
D)Direct benefits from someone else's purchase of a private good.

Question 32

Which of the following is most likely a private good?

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

Question 33

Using Figure 4.2,suppose point C represents the optimal mix of public and private goods for a society.The market mechanism is likely to result in a mix of output represented by point

A)F because the market mechanism is inefficient.
B)B because the market mechanism tends to overproduce public goods.
C)C because the market mechanism is efficient.
D)D because the market mechanism tends to underproduce public goods.

Question 34

If public goods were marketed like private goods,then

A)Public goods would be overproduced.
B)There would be market failure.
C)The optimal mix of output would occur at the market equilibrium.
D)The economy would be outside the production possibilities curve.

Question 35

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.

Question 36

The free-rider problem

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 37

A public good

A)Is any good produced by the government.
B)Is overproduced by the market.
C)Causes government failure.
D)Is subject to the free-rider dilemma.

Question 38

In economics,a public good

A)Is any good produced by the government.
B)Has social costs of production lower than private costs of production.
C)Is provided in an optimal amount by the market.
D)Cannot be denied to consumers who have not paid.

Question 39

Which of the following is an example of a public good?

A)Carpooling with your friends.
B)Flood control.
C)Social Security payments.
D)None of the choices are correct.

Question 40

Externalities

A)Occur because of government failure.
B)Are the costs or benefits of market activities that "spill over" onto third parties.
C)Occur because of selfish consumers.
D)Occur because demand is hidden.

Question 41

A monopoly occurs when

A)A firm gains some level of market power.
B)A firm charges a price greater than the equilibrium price.
C)There is only one producer of a particular good or service.
D)There is an underproduction of a good or service by a firm.

Question 42

Generally speaking,monopolies

A)Have great productive efficiency and are always beneficial to society.
B)May be beneficial to society if they are allowed to act like monopolies without government interference.
C)May be beneficial to society if they are natural monopolies and are regulated.
D)Are never beneficial to society.

Question 43

Which of the following produces external benefits?

A)Garbage dumped in the Atlantic Ocean.
B)College students getting vaccinated against the flu.
C)Passive smoke in a public building.
D)All of the choices are correct.

Question 44

Antitrust activity addresses

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

Question 45

When external costs result from the production of a good,

A)Producers have an incentive to produce too little.
B)Consumers have an incentive to consume too little.
C)Both producers and consumers have an incentive to produce and consume too much.
D)Producers and consumers are not affected.

Question 46

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.

Question 47

Market power may result from

A)Antitrust policy.
B)Control of resources.
C)Flawed price signals.
D)Merit goods.

Question 48

Which of the following justifies the federal government's role in antitrust enforcement?

A)Inequity.
B)Public goods and externalities.
C)Market power.
D)Macro failure.

Question 49

If the consumption of a good yields external benefits,then

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.

Question 50

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.

Question 51

An externality affecting demand can be measured graphically as the

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 52

Social demand is equal to

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.

Question 53

Which of the following is the government most likely to discourage because of the existence of externalities?

A)All goods and services produced by monopolies.
B)Cars that create an excessive amount of exhaust fumes.
C)Thermal pollution from a power plant that improves fishing downstream.
D)Foods that taste good.

Question 54

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)Third parties,other than yourself,benefit from you being educated.
D)The profit motive would cause the private sector to overproduce education.

Question 55

Government intervention to alter market structure or prevent abuse of market power is the basic purpose of

A)Merit goods.
B)Government taxes.
C)Social demand.
D)Antitrust policy.

Question 56

An external cost on supply can be measured graphically as the

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.

Question 57

The term market power refers to

A)A firm's ability to eliminate free riders.
B)A firm's ability to alter the market price or quantity of a good or service.
C)The government's ability to change market outcomes.
D)The government's authority to tax businesses.

Question 58

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.

Question 59

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.

Question 60

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?

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

Question 61

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.

Question 62

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

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.

Question 63

The principal mechanism for redistributing incomes is

A)The tax-and-transfer system.
B)Antitrust policy.
C)Market power.
D)The production of public goods.

Question 64

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.

Question 65

Which of the following is the best example of a government effort to address market failure in relation to the FOR WHOM to produce question?

A)Antitrust policy.
B)Regulations reducing pollution.
C)Transfer payments.
D)The production of goods that allow free riders.

Question 66

When the economy experiences abnormally high unemployment,

A)There is government failure.
B)There is macro instability.
C)The economy is producing on the production possibilities curve.
D)No market failure occurs.

Question 67

The term transfer payments refers to

A)Federal income taxes.
B)Money that is transferred between savings and checking accounts.
C)Payments to individuals that are not in exchange for current goods and services being produced.
D)Additional profits transferred to monopolies as a result of their market power.

Question 68

The fastest-growing areas for state expenditures are

A)Education and welfare.
B)Sewage and trash service.
C)Prisons and welfare.
D)Transportation and public safety.

Question 69

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

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 70

Most of the direct spending at the state government level is on

A)Defense.
B)Public safety.
C)Transportation.
D)Education.

Question 71

Which of the following is a merit good?

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

Question 72

The primary function of taxes is to

A)Transfer the command of resources from the private sector to the public sector.
B)Increase the purchasing power of the private sector.
C)Increase private saving.
D)Correct inequities in the distribution of goods and services.

Question 73

Which of the following is a merit good?

A)Cigarettes.
B)Food.
C)Local telephone service.
D)A computer operating system.

Question 74

From 1990 to 2010,the public sector share of total output

A)Trended upward to 2000 and then downward to 2010.
B)Trended upward through 2010.
C)Trended downward to 2000 and then upward to 2010.
D)Trended downward to 2010.

Question 75

From 2000 to 2010,the public sector share of total output

A)Trended up for state and local governments and down for the federal government.
B)Trended up for state and local governments and up for the federal government.
C)Remained stable for state and local governments but trended up for the federal government.
D)Remained stable for the federal government but trended up for state and local governments.

Question 76

Government intervention can serve to stabilize the macro economy by

A)Reducing inflation and encouraging the equitable distribution of income.
B)Reducing employment and encouraging economic growth.
C)Regulating monopolies and encouraging the equitable distribution of output.
D)Reducing inflation and encouraging economic growth.

Question 77

The majority of federal expenditures is spent on

A)Private sector purchases of goods and services.
B)National Defense.
C)Income transfers.
D)Public sector purchases of goods and services.

Question 78

Which of the following occurs when the economy experiences inflation?

A)Government failure.
B)Micro instability.
C)Macro instability.
D)The free-rider problem.

Question 79

A merit good is

A)Income payments for which no goods or services are exchanged.
B)A good society holds to a higher standard in tax regulations.
C)A good or service that society believes everyone is entitled to a minimal quantity of.
D)A product that serves as an incentive to produce more output.

Question 80

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

A)Social Security payroll tax.
B)A local sales tax.
C)The federal income tax.
D)An excise tax.