Question 1

In the absence of environmental laws, many people will act in their own self-interests; they will overuse natural resources and abuse the environment. If many individuals and businesses act this way, we will have a degraded environment and depleted resources. This poses a ________ for people who wish to enjoy the goods provided by nature.

Accepted Answer

The situation described in the passage is a classic example of a collective action problem, where each individual's rational self-interest leads to the degradation of the environment and depletion of resources, even though as a group they would all be better off if resources were conserved and the environment protected. This highlights the need for collective action, cooperation, and the implementation of environmental laws to address the negative externalities associated with resource use and pollution.

Question 2

In general, a/an ________ is most threatening to public goods.

Accepted Answer

Collective-action problems occur when individuals or interest groups have little incentive to contribute to public goods such as clean air or national security, which are non-excludable and non-rival. As a result, these goods may be underprovided or not provided at all without government intervention or other forms of coordination. Collective-action problems are a threat to public goods because they can lead to a tragedy of the commons, where individuals prioritize their own interests over the common good.

Question 3

National defense, which provides security against foreign invasion to all Americans living within the country's borders, is an example of a ________ policy.

Accepted Answer

National defense is a distributive policy because it provides benefits to all Americans equally without taking from one group and giving to another.

Question 4

________ refers to the increasing purchasing power of a unit of currency.

Accepted Answer

Deflation refers to a decrease in the general price level of goods and services in an economy over time, which implies an increase in the purchasing power of a unit of currency.

Question 5

For the government, regulations are ________ compared to programs like Social Security, Medicare, or national defense.

Accepted Answer

Regulations are generally considered inexpensive for the government when compared to the costs associated with large-scale programs like Social Security, Medicare, or national defense, which require significant funding for operations and benefits.

Question 6

The city of Boston puts on a large fireworks display on the Charles River each Independence Day. The city does not charge admission to the event, and the promenade along the river is large enough to accommodate all the spectators who arrive for the show. Boston's fireworks display is a ________ good.

Accepted Answer

The fact that the city does not charge admission and that the promenade along the river is open to all spectators suggests that Boston's fireworks display is a public good.

Question 7

Which term refers to alternating periods of economic growth and contraction?

Accepted Answer

The term that refers to alternating periods of economic growth and contraction is the business cycle.

Question 8

________ policy is a government policy intended to provide benefits to a large portion of the population.

Accepted Answer

Distributive policy is designed to provide benefits to a large portion of the population, such as programs like Social Security or Medicare. Redistributive policies, on the other hand, aim to shift resources from one group to another, usually by taking from the wealthy to provide for the poor. Regulatory policies set standards or rules to control certain activities or prevent negative externalities. Monetary policies regulate the nation's money supply and interest rates. Fiscal policies involve government spending and taxation decisions.

Question 9

Regulations in general are intended to ________.

Accepted Answer

Regulations are put in place to protect various parties, including consumers, workers, businesses, and investors, from harm, exploitation, or unfair practices. Generally, regulations aim to create a level playing field and ensure a safe and fair marketplace for all participants. While there might be some costs or drawbacks associated with compliance, the benefits of regulation are believed to outweigh the costs in the long run.

Question 10

The city of Brentwood maintains a small pavilion in its Central Park with a barbeque grill. Anyone may reserve the pavilion for an event, but the pavilion can only accommodate one event at a time. Brentwood's pavilion is a ________ good.

Accepted Answer

The pavilion is a common good because it is non-rivalrous (one person's use of the pavilion does not prevent another person from using it) and non-excludable (it is difficult to prevent people from using the pavilion).

Question 11

________ policy is a government policy that provides benefits to a particular group or class of citizens and is paid for by another group or class of citizens.

Accepted Answer

Redistributive policy involves taking resources from one group of citizens, usually through taxes, and using those resources to provide benefits to another group of citizens. This can involve things like social welfare programs or progressive tax schemes, where the wealthy pay a higher rate of taxes in order to provide services to those who are less well off.

Question 12

Sugar farmers receive generous subsidies from the government and benefit from high tariffs on foreign imports. These are examples of ________ policies.

Accepted Answer

Redistributive policies are designed to transfer resources from one group to another, often to support specific industries or groups, such as subsidies and tariffs for sugar farmers.

Question 13

When people and companies cannot borrow or earn enough money to make economic transactions that match the level of productivity, what is this called?

Accepted Answer

Deflation occurs when there is a decrease in the general price level of goods and services, often due to insufficient money supply or demand, leading to reduced economic transactions despite available productivity.

Question 14

Social Security is widely understood as a distributive form of insurance, in which workers pay into the system and then receive the benefits when they retire. This perception is ________. Social Security ________.

Accepted Answer

Social Security operates on a pay-as-you-go basis where current workers' payroll taxes fund the benefits of current retirees, rather than accumulating in a trust fund for the individual worker's future use.

Question 15

Which refers to the declining purchasing power of a unit of currency?

Accepted Answer

Inflation refers to the declining purchasing power of a unit of currency.

Question 16

The Social Security system, which taxes workers to pay cash benefits to retirees and those who cannot work due to disabilities, is an example of a ________ policy.

Accepted Answer

The Social Security system is an example of a redistributive policy because it takes money from current workers and redistributes it to retirees and those who cannot work due to disabilities. It is intended to reduce income inequality by providing a safety net to those who may not otherwise have sufficient income in their retirement years.

Question 17

Which is a product or benefit that can be enjoyed by anyone, regardless of whether he or she has paid for it, such that its consumption by one person prevents its consumption by others?

Accepted Answer

Common goods are resources that are available to all members of a society but can be depleted if overused, such as fish in the sea or public parks. Their consumption by one person can prevent their consumption by others, unlike public goods which are non-excludable and non-rivalrous.

Question 18

The Holly Hills Country Club maintains a large swimming pool. Only dues-paying members may enter the pool, and the pool is large enough to accommodate all the club's members at once if necessary. The Holly Hills Country Club pool is a ________ good.

Accepted Answer

The Holly Hills Country Club pool is a club good because it is excludable (only dues-paying members can use it) and non-rivalrous (one member's use does not diminish availability for others).

Question 19

According to the University of Illinois's agricultural outreach service, the average wholesale price of corn rose from $1.03 in 1960 to $2.36 in 2006. The decline in the corn purchasing power of a dollar is an example of ________.

Accepted Answer

The decrease in the purchasing power of a dollar due to the increase in the average wholesale price of corn is an example of inflation.

Question 20

Which is a product or benefit that can only be enjoyed by those who pay for it, and consumption by one person does not prevent its consumption by others?

Accepted Answer

A club good is a product or benefit that can only be enjoyed by those who pay for it, and consumption by one person does not prevent its consumption by others. Examples include a subscription service or a private club membership.

Quiz 15: Economic Policy