CHAPTER 5: PUBLIC SPENDING AND PUBLIC CHOICE
A good that has been deemed socially desirable through the political process is known as: A) A merit good B) A demerit good C) A positive externality D) A free-rider
A
A true public good must be provided by the government. Which of the following goods provided by the government is a true public good: A) Flood control B) Highways where tolls are collected C) Postal service D) Tax collection
A
Most private goods ________ rival in consumption, and most public goods ________ rival in consumption: A) Are; are not B) Are not; are C) Are; are D) Are not; are not
A
Market failure refers to a situation where a market economy collapses: A) True B) False
B
Each of the following factors has played a significant role in the rapid expansion of Medicare spending by the U.S. government except: A) Government planners failed to correctly estimate the increase in consumption of medical services B) The profit motive of physicians and hospitals C) Consumers of Medicare tend to only consume the high valued medical services D) Total medical spending (number of consumers times the price of medical services) has risen rapidly in the U.S
C
Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as: A) Black market payments B) Merit payments C) Transfer payments D) Demerit payments
C
One reason that collective and private decision making differ is: A) Private individuals compete and act in their own interest while government bureaucrats do not B) The government actions do not have an opportunity cost while private actions do C) Individuals working in the government sector face a different incentive structure than those in the private sector D) There is no difference between collective and private decision making
C
One of the largest public spending and transfer programs in the United States is the: A) Medicare program B) Consumer protection program C) Unemployment insurance program D) Environmental protection program
A
The goal of antitrust legislation is to reduce the power of firms that can determine the market price of the goods they sell: A) True B) False
A
An effluent fee refers to a government regulation which specifies a maximum allowable rate of pollution: A) True B) False
B
Transfer payments are money payments made by governments in exchange for goods or services: A) True B) False
B
The socially efficient use of bus services may be achieved by which of the following government policies: A) Subsidies B) Regulations C) Government financing and/or production D) Any of the above E) None of the above
D
Consumer sovereignty means that consumers have the individual freedom to decide what they wish to purchase: A) True B) False
A
Medicare provides government: A) Subsidies to elderly and other legally qualified recipients of assistance with health care expenses B) Fee-for-service health services to elderly and other legally qualified recipients of assistance C) Health care expenses for all the uninsured D) Subsidies to the unemployed with health care expenses
A
Much of our legal system is involved with defining and protecting property rights: A) True B) False
A
Which of the following is not a political function of the government that leads to involvement in the economy: A) Public goods B) In-kind transfers C) Income redistribution D) Merit and demerit goods
A
All of the following are goals established by the Full-Employment Act of 1946 EXCEPT: A) Economic growth B) A balanced budget C) Price stability D) Full employment
B
If producers have to pay external costs, the supply curve will shift to the ______, and if consumers take external benefits into account, the demand curve will shift to the ________: A) Left; left B) Left; right C) Right; right D) Right; left
B
Market failure occurs because: A) The market system does not make individuals responsible for the private costs/benefits of their actions B) The market system does not make individuals responsible for the social costs/benefits of their actions C) The market system forces individuals to consider the social consequences of their actions D) The market system forces individuals to consider the social and private consequences of their actions
B
Market failure occurs when: A) The market system fails to allocate resources to each individual according to their abilities B) The unrestrained market economy leads to too few or too many resources going to a specific economic activity C) The market system fails to allocate resources to each individual according to their needs D) The market system fails to allocate an equal share of resources to all individuals
B
One of the largest public spending and transfer programs in the United States that provides government subsidies to elderly and other legally qualified recipients of assistance with health care expenses is: A) Social Security B) Medicare C) TANF D) Medicaid
B
Other than correcting externalities, other economic functions of government include: A) Deciding what to produce, how to produce it and for whom to produce for all sectors of the economy B) Providing a legal system, allocating public goods, promoting competition, and stabilizing the economy C) Deciding which states may or may not impose income taxes, charge fees and enforce contracts D) Income redistribution and the regulation and provision of merit and demerit goods
B
Pollution produced by a factory is being dumped into a local river. The community uses local funds to clean the river. This is an example of: A) A public good B) An external cost as the community, not the factory, is paying for the clean up C) An external benefit since it creates jobs in environmental science D) An effluent fee because it is as if the factory is taxing the community
B
The most common provider of public goods is the private sector: A) True B) False
B
Which of the following is not an economic function of government: A) Promoting competition B) Income redistribution C) Providing a legal system D) Ensuring economy-wide stability
B
Which one of the following is a primary difference between a public good and a private good: A) A private good is subject to the free-rider problem while a public good is not B) Private goods are subject to the principle of rival consumption while public goods are not C) Private goods are manufactured because of the workings of the price system while public goods come about through antitrust legislation D) Private goods are purchased by money transfers while public goods are purchased by in-kind transfers
B
A cost or benefit of an economic activity that has an impact on an individual's well-being, even though the individual was not directly involved in the activity, is known as a(n): A) Free-rider B) Capital loss C) Externality D) Public good
C
All of the following are ways the government can correct positive externalities EXCEPT: A) Financing the production of the good B) Imposing regulations C) Imposing positive taxes D) Subsidizing the product or service
C
Suppose Canada spends less per capital on national defense than many other countries of similar size and income. A reasonable economic explanation would be that: A) Canadians perceive national defense as generating external costs rather than as a public good B) Canada's tax system is less efficient than other industrial nations C) Canada is able to free-ride on the defense spending of the United States D) National defense is not a public good in Canada
C
The study of collective decision making, or the process through which voters, politicians and other interested parties influence non-market choices is known as: A) The exclusion principle B) A private choice theory C) Public choice theory D) Antitrust legislation
C
The theory of public choice is the study of: A) How the price system allocates resources in the public sector B) The study of the system of rewards or punishments in the private sector C) The process through which voters, politicians, and other interested parties interact to influence non-market choices D) How legal coercion influences the allocation of resources in the private sector
C
Which of the following is NOT a difference between market and collective decision making: A) The government can use expropriation to extract payments, but private firms cannot B) Government goods are often provided free of charge, while market goods have a price C) Government goods are cost-less to produce, while private goods have production costs D) Money payments can signal intensity of desire for a product, but voting cannot
C
In the decision making process for markets and the public sector: A) Dollars spent count as votes in the market system, but in the public sector one person gets one vote B) The spending of dollars can indicate intensity of want, but political voting does not C) The market system is run by proportional voting rules and the public sector is run by majority rule D) All of the above
D
Since the 1960's, public spending on education has _________, while student performance has ______________: A) Decreased, remained constant or increased B) Decreased, remained constant or increased C) Increased, increased D) Increased, remained constant or declined E) Decreased, decreased
D
Subsidizing medical services through Medicare: A) Makes the quantity supplied of medical services smaller than the quantity demanded B) Makes the quantity demanded of medical services smaller than the quantity supplied C) Lowers the price per unit of medical care received by producers D) Raises the price per unit of medical care received by producers
D
Which of the following is a common example of a government-sponsored good: A) Tobacco products B) Gambling C) Alcohol D) Museums
D
Subsidizing medical services through Medicare: A) Makes medical services available to a large percentage of the population, who otherwise could not afford them B) Drives a wedge between the price received by providers and the price perceived by consumers C) Is a relatively low percentage of U.S. GDP compared to other nations D) All of the above are true E) Only A and B are true
E