Question 1

In the case of private goods:&#10;A)the consumption by one individual does not reduce the amount available for others.&#10;B)the attribute of nonrival consumption is common.&#10;C)the nonexclusion concept is often valid.&#10;D)none of these.

Accepted Answer

None of these statements are applicable to private goods. Private goods are both rival and excludable, meaning that consumption by one individual reduces the amount available for others and access can be restricted or excluded.

Question 2

A public-sector investment project should not be undertaken if:&#10;A)SIRR < k.&#10;B)SIRR > k.&#10;C)B/C ratio > 1.&#10;D)SIRR > k and B/C ratio > 1.

Accepted Answer

A public-sector investment project should not be undertaken if the SIRR (Social Internal Rate of Return) is less than the discount rate or cost of capital (k). This means that the project's expected benefits do not exceed its expected costs, and the project is not financially feasible. None of the other options B, C, or D, necessarily suggest that the project should not be undertaken. SIRR (Social Internal Rate of Return) measures the social benefits of the project in comparison to the social costs. The minimum acceptable SIRR is typically set at the opportunity cost of capital, or "k." Thus, if SIRR is less than k, the project is not generating enough social benefits to justify the social cost of investment and should not be undertaken. B and D are incorrect because they suggest the project should be undertaken if SIRR is greater than k or if B/C ratio is greater than 1, but SIRR should always be the primary consideration in public-sector investment decisions.

Question 3

Market failure is a growing problem in the:&#10;A)wholesale generation of electric power.&#10;B)transmission and local distribution of electricity.&#10;C)market for telecommunications services.&#10;D)period following passage of the Clean Air Act.

Accepted Answer

B

Question 4

Which of the following public goods displays the nonrival consumption concept and is nonexclusionary?&#10;A)a free health clinic.&#10;B)town-sponsored fireworks on the Fourth of July.&#10;C)public trash pickup.&#10;D)public-sponsored bus service.

Accepted Answer

Town-sponsored fireworks on the Fourth of July is an example of a public good that displays the nonrival consumption concept because individuals do not consume the good in a way that depletes its availability to others. Additionally, it is nonexclusionary because it is difficult to exclude individuals from watching the fireworks display. Town-sponsored fireworks on the Fourth of July displays the nonrival consumption concept because enjoying the fireworks display does not diminish its value for others, and it is nonexclusionary because anyone can watch the display without being excluded. The other options all have some element of rivalry in consumption or exclusion.

Question 5

A government program is deemed attractive when beneficiaries could fully compensate losers and still receive positive net benefit according to the:&#10;A)Pareto satisfactory criterion.&#10;B)Pareto optimal criterion.&#10;C)potential Pareto improvement criterion.&#10;D)none of these.

Accepted Answer

The correct answer is the potential Pareto improvement criterion, which suggests a situation where the benefits to those who gain from a policy are large enough that they could theoretically compensate those who lose out and still retain some benefit. This does not require actual compensation to take place, just the potential for it, distinguishing it from the Pareto optimal criterion, which requires that no one can be made better off without making someone else worse off.

Question 6

An example of a public good subject to the nonexclusion concept that is provided by the private sector in the United States is:&#10;A)the Internet.&#10;B)college education.&#10;C)radio broadcasts.&#10;D)wireless phone service.

Accepted Answer

Radio broadcasts are an example of a public good provided by the private sector that is subject to the nonexclusion principle, meaning it's difficult to exclude non-paying consumers from using the service.

Question 7

The free rider problem is seldom related to:&#10;A)private goods.&#10;B)nonrival consumption.&#10;C)hidden preferences.&#10;D)the nonexclusion concept.

Accepted Answer

The free rider problem is typically associated with non-excludable goods or services, where individuals can benefit from them without paying their fair share. Private goods, on the other hand, are excludable and individuals must pay to access them. Therefore, the free rider problem is not usually a concern with private goods. The free rider problem is not related to private goods. Private goods are excludable and rival in consumption, which means that individuals can be prevented from using them and their consumption by one person decreases the availability for others. Hence, the free rider problem is not relevant in the context of private goods.

Question 8

Expanding opportunities for international trade tends to have the effect of reducing:&#10;A)economic efficiency.&#10;B)the scope for commercial transactions.&#10;C)capital inflows and outflows.&#10;D)monopoly profits.

Accepted Answer

Expanding opportunities for international trade leads to increased competition, which reduces the ability of firms to maintain their monopoly power and earn excessive profits. Therefore, option D - monopoly profits - is the correct answer. Expanding opportunities for international trade tends to increase competition in the market and reduce barriers to entry, which can lead to reduced monopoly profits.

Question 9

Airport noise pollution costs that are directly borne by producers or their customers are:&#10;A)marginal costs of production.&#10;B)marginal external costs.&#10;C)marginal social costs.&#10;D)opportunity costs.

Accepted Answer

Marginal costs of production include all costs directly associated with the production of a good or service, including those related to mitigating or managing noise pollution.

Question 10

Managed competition would encourage rivalry among health insurers but:&#10;A)allow the government to define the benefits that most Americans would receive.&#10;B)improve access to insurance by mandating employer coverage.&#10;C)fail to address the problem of rising medical costs.&#10;D)would lead to a cost explosion.

Accepted Answer

Managed competition in healthcare allows the government to define the benefits package that most Americans would receive, ensuring a standard level of care while encouraging competition among insurers to provide these defined benefits at the best price and quality.

Deck 19: Government in the Market Economy