Question 1

Bain Educational operates an elementary school in Big Bucks, Kansas. It is open to any student in the local school district and the school is financed by a property tax levied by the local school district. This represents an example of:

A) public provision and public production
B) public provision and private production
C) private provision and private production
D) private provision and public production

Accepted Answer

public provision and private production

Question 2

If a good is characterized by easy exclusion but many may concurrently use it without reducing the amount available for others, the good is a:&#10;A) private gooD)&#10;B) common property resource.&#10;C) toll gooD)&#10;D) public gooD)

Accepted Answer

A toll good is characterized by easy exclusion (through pricing or access control) and non-rival consumption, meaning many people can use it without reducing the amount available for others. This fits the description given.

Question 3

Which is not a reason for privatizing government services?&#10;A) To increase production efficiency.&#10;B) To improve service to the publiC)&#10;C) To raise cash.&#10;D) All of the above are reasons to privatize.

Accepted Answer

All three options (A, B, and C) are valid reasons for privatizing government services, therefore D is the correct answer.

Question 4

A public project produces the following pattern of individual benefits and costs for the people influenced by the project.
The project:

A) passes the Pareto criterion but is not economically feasible.
B) would pass a majority vote but not the Pareto criterion.
C) passes the criterion of economic feasibility, but would not pass majority vote.
D) passes the pareto criterion but would not pass a majority vote.

Accepted Answer

The answer of A public project produces the following pattern...

Question 5

Which of the following would be described as a common pool resource?&#10;A) A can of soda&#10;B) An aquifer&#10;C) National defense&#10;D) A movie theatre

Accepted Answer

A common pool resource is a type of resource that is not owned by any one individual or group, but is available for use by multiple users. An aquifer fits this definition as it is a natural resource that can be accessed by many people for various purposes such as drinking water or irrigation. Options A, C and D are not common pool resources as they are either privately owned (a can of soda, a movie theatre) or publicly owned but not available for shared use (national defense).

Question 6

Toll goods are characterized by:&#10;A) joint use and exclusion not feasible.&#10;B) alternate or competitive) use and exclusion not feasible.&#10;C) joint use and exclusion feasible.&#10;D) alternate or competitive) use and exclusion feasible.

Accepted Answer

Toll goods are goods that can be used concurrently by different individuals, but exclusion is feasible through payment (toll). Therefore, joint use and exclusion are feasible for toll goods.

Question 7

Which of the following is an application of the principle of moral hazard?&#10;A) People build homes in areas subject to severe flood damage when federally-subsidized insurance is available.&#10;B) Inappropriate lyrics are available for downloading through the Internet when regulations are not enforceD)&#10;C) Actions by one individual have an impact on innocent bystanders.&#10;D) None of the above.

Accepted Answer

The principle of moral hazard refers to the tendency of individuals to take greater risks when they are insured against potential losses. In this case, people may be more likely to build homes in areas subject to severe flood damage if they know they can rely on federally-subsidized insurance to cover the costs of any damage or losses. This can lead to increased losses for the government and taxpayers who are ultimately responsible for paying for the insurance program.

Question 8

Which of the following arguments is based on the concept of adverse selection?&#10;A) The U.S. Military needs higher pay to attract the best personnel.&#10;B) Private medical insurance companies seek to exclude those most likely to need healthcare.&#10;C) Only the national government can successfully conduct macroeconomic stabilization policies.&#10;D) Mosquito abatement is a public gooD)

Accepted Answer

Adverse selection refers to the situation where one party in a transaction has more information than the other and uses that information to their advantage. In the case of private medical insurance companies, they may exclude those most likely to need healthcare (such as individuals with preexisting conditions) to minimize their own costs and risk. This is an example of adverse selection in the insurance market.

Question 9

Logrolling is the process where:&#10;A) one legislator trades his/her vote on one issue in exchange for the vote of another legislator on a second issue.&#10;B) campaign contributions are used to secure a legislator's vote on a particular issue.&#10;C) media campaigns are initiated by special interest groups to sway public opinion and subsequently legislators votes on issues.&#10;D) unrelated amendments are attached to pending legislation to secure its passage.

Accepted Answer

Logrolling refers to the practice where legislators exchange votes on different issues to secure mutual benefits, ensuring that each legislator's favored legislation has a better chance of passing.

Question 10

Non-appropriability consists of the following two aspects:&#10;A) nonsubsidization and nondistribution.&#10;B) nonexclusion and nonexhaustion.&#10;C) taxing and spending.&#10;D) none of the above.

Accepted Answer

Non-appropriability refers to resources that cannot be easily owned or controlled by private individuals, such as public goods or common resources. Nonexclusion means that individuals cannot be prevented from using the resource, while nonexhaustion means that use of the resource by one person does not diminish its availability to others. Therefore, the correct answer is B. Choices A and C are not related to the concept of non-appropriability.

Deck 1: Fundamental Principles of Public Finance