ECON Test 2

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action? a. There will be a shortage of corn. b. There will be a surplus of corn. c. There will be a decrease in the quantity of corn demanded as the result of the price ceiling. d. There will be an increase in the quantity of corn supplied as the result of the price ceiling.

a

Competitive markets generally give consumers and producers correct incentives when a. externalities are present in the market. b. property rights are well-defined and enforced. c. the good being produced and consumed is a pure public good. d. there is a substantial lack of information on the part of either buyers or sellers.

b

A car sells at different prices at different dealerships in a local market. If a consumer has imperfect information about the price of a car at each dealership, he should a. always gather all available information about prices. b. gather information about prices until the expected marginal benefit of more information equals the marginal cost of gathering it. c. gather information about prices only if it can be gathered without cost. d. ignore information about prices because it is irrelevant to making an "optimally imperfect" decision.

b

Refer to Figure 4-22. The amount of the tax per unit is a. $1.00. b. $1.50. c. $2.50. d. $3.50.

c

Refer to Figure 4-22. The price paid by buyers after the tax is imposed is a. $1.00. b. $3.50. c. $5.00. d. $6.00.

d

Which of the following explains why pork-barrel spending is often approved, even when the spending is inefficient? a. Each representative has little incentive to oppose pork-barrel spending since the tax savings would accrue to taxpayers throughout the nation. b. General opposition to pork-barrel spending by a legislator would make it more difficult for the legislator to arrange for pork-barrel projects that provide concentrated benefits for his district. c. Logrolling increases the likelihood that pork-barrel projects will be approved. d. All of the above are correct.

d

Consider two goods - one that generates external benefits and another that generates external costs. The actual market outcome would a. result in a price that is lower than the efficient price for both goods. b. result in a price that is higher than the efficient price for both goods. c. result in a price that is lower than the efficient price for the good with an external benefit and a price that is higher than the efficient price for the good with an external cost. d. result in a price that is higher than the efficient price for the good with an external benefit and a price that is lower than the efficient price for the good with an external cost.

a

Figure 6-2 illustrates the four possibilities of the structure of production and consumption for a good or service. In which case is the incentive of producers and consumers to economize the strongest? a. A b. B c. C d. D

a

Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply. a. Consumers would want to buy t; producers would be willing to sell r. b. Consumers would want to buy r; producers would be willing to sell t. c. Consumers would want to buy t; producers would be willing to sell s. d. Consumers would want to buy s; producers would be willing to sell s.

a

If the construction of a new roadway would create $10 billion worth of benefits to citizens and would cost $8 billion to construct, then using the criterion of economic efficiency, the roadway a. should be built. b. should not be built. c. results in no net improvement to the welfare of society. d. should be built only if it passes by a majority vote.

a

If there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer? a. price increases; quantity decreases c. price increases; quantity increases b. price decreases; quantity decreases d. price decreases; quantity increases

a

In which one of the following situations is the political process most likely to result in both the acceptance of efficient (productive) programs and the rejection of inefficient (counterproductive) political activities? a. The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives. b. The benefits are highly concentrated, and the costs are widespread among voters. c. The costs are highly concentrated, and the benefits are widespread among voters. d. The benefits accrue primarily in the future, while the costs are more visible during the current period.

a

Joella is a third-grade public school teacher who doesn't own a car and uses public transportation. According to public choice theory, which of the following four politicians for a public office would Joella be most likely to vote for in the upcoming election? a. Politician A proposes increasing the property tax on personal automobiles and using the money to increase teacher salaries by 10 percent. b. Politician B proposes an across-the-board increase in state income tax rates and using the money to increase the benefits paid to unemployed workers. c. Politician C proposes increasing the property tax on personal automobiles and using the money to increase the benefits paid to unemployed workers. d. Politician D proposes an across-the-board increase in state income tax rates and using the money to improve the highway system.

a

Logrolling refers to a. vote trading among legislators. b. the tendency of voters to free-ride on the payment for public goods. c. the power of well-organized interest groups. d. the tendency of legislators to favor the interests of the timber (logging) industry.

a

Many external costs occur because a. people do not pay the true cost of using a resource. b. people do not pay the private cost of using a resource. c. companies do not pay the market price for natural resources. d. companies pay more than the true cost of using a resource.

a

Markets may have difficulty providing the proper quantity of a public good because a. individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. b. the good generally has a very large value to consumers relative to its cost of production. c. the good is one that tends to benefit a large number of people. d. the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders.

a

Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to a. get them reelected. b. improve economic efficiency. c. improve the welfare of society as a whole. d. anger the interest groups that provide substantial contributions to their campaigns.

a

Refer to Figure 4-18. In this market, which of the following price controls would be binding? a. a price ceiling of $2.00, and it would cause a shortage b. a price ceiling of $5.00, and it would cause a surplus c. a price floor of $2.00, and it would cause a shortage d. All of the above are correct.

a

Refer to Figure 4-22. Buyers pay how much of the tax per unit? a. $1.00. b. $1.50. c. $2.50. d. $3.00

a

Refer to Figure 4-22. From this tax the government will collect a total of A.$125 B.$175 C.$200 D.$250

a

Relative to a competitive situation, if a market lacks competition, economic theory suggests that a. output will be lower and price higher. c. both output and price will be higher. b. output will be higher and price lower. d. both output and price will be lower.

a

Rent controls tend to cause persistent imbalances in the market for housing because a. Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. b. Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. c. Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. d. Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

a

Suppose external costs are present in a market which results in the actual market price of $84 and market output of 320 units. How does this outcome compare to the efficient, ideal equilibrium? a. The efficient price would be higher than $84. b. The efficient price would be lower than $84. c. The efficient price would also be $84. d. The efficient output would be greater than 320 units.

a

Suppose that a tax is placed on textbooks. If the buyers end up bearing most of the tax burden, this indicates that the a. demand is more inelastic than the supply. b. supply is more inelastic than the demand. c. government has required that buyers remit the tax payments. d. government has required that buyers remit the tax payments.

a

Suppose that an MBA degree creates no externality because the benefits of an MBA are captured by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? a. The equilibrium quantity of MBAs will equal the efficient quantity of MBAs. b. The equilibrium quantity of MBAs will be greater than the efficient quantity of MBAs. c. The equilibrium quantity of MBAs will be less than the efficient quantity of MBAs. d. The equilibrium price of MBAs will be greater than the efficient price of MBAs.

a

The fact that voters perceive their votes as unlikely to actually change the outcome of an election causes a. voters to have little incentive to become informed about candidates and political issues. b. voters to spend a great deal of effort becoming informed about candidates and political issues. c. the percent of people who actually turn out to cast a vote on election day to be very high. d. people to be extremely reluctant to "waste" their votes on a third-party candidate.

a

The large amount of violence associated with the current drug trade is mostly caused by a. the fact that drug markets must operate outside the normal legal system. b. buyers and sellers often being under the influence of drugs at the time of the transaction. c. buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. d. the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets.

a

The rational-ignorance effect refers to the a. lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election. b. fact that most people choose to become just as well-informed when making choices as consumers as they do when making choices as voters. c. lack of rational analysis on the part of voters when they choose not to become informed about candidates and issues even though this knowledge would produce great personal benefit to them. d. problem of not enough information being supplied to voters because politicians are not spending enough on campaign adds to inform voters of their positions on issues.

a

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because a. with shortages and waiting lists, they have no incentive to maintain and improve their property. b. they become resigned to the fact that many of their apartments are going to be vacant at any given time. c. with rent control the government guarantees landlords a minimal level of profit. d. with rent control it becomes the government's responsibility to maintain rental housing.

a

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because a. the market price of the product will fall in response to the subsidy. b. the market price of the product will rise in response to the subsidy. c. the market price of the product will not change in response to the subsidy. d. producers will reduce the supply of the product.

a

Which of the following is true? a. To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors. b. A politician always attempts to pursue policies that are good for society even if they are strongly opposed by many of her constituents or contributors. c. Politicians generally place more weight on how their decisions affect future costs and benefits than on how they affect present costs and benefits. d. The value of being in office is so low that most political candidates spend very little on campaigns to try to win (or keep) elected office.

a

Which of the following provides the best summary of the basic idea of public choice analysis? a. Public choice analysis applies the principles of economics to political science topics. b. Public choice analysis takes the principles of political science and applies them to the traditional topics of economics. c. Public choice analysis uses the principle of majority rule to determine the efficiency of an action. d. Public choice analysis indicates there is a sharp distinction between economic and political topics.

a

Which of the following statements is true? a. In both black markets and legal markets, supply and demand determine price. b. The quality of products sold in black markets and legal markets are similar. c. The price of products in black markets tends to be the same as those in legal markets for otherwise identical products. d. The rate of violence is similar in black markets and legal markets.

a

which of the following markets are information problems likely to be most serious? a. used cars c. toothpaste b. groceries d. compact discs

a

A deadweight loss results from the imposition of a tax on a good because the tax a. induces the government to increase its expenditures. b. reduces the quantity of exchanges between buyers and sellers. c. causes a disequilibrium in the market. d. imposes a loss on buyers that is greater than the loss to sellers.

b

A good is considered to be a public good if it a. is a good produced by the government sector. b. is both nonrival-in-consumption and nonexcludable. c. benefits only a small group of consumers but is very costly to produce. d. is a good whose production is financed by tax revenue.

b

According to the shortsightedness effect, politicians tend to favor projects with a. short-run benefits and short-run costs. c. long-run benefits and short-run costs. b. short-run benefits and long-run costs. d. long-run benefits and long-run costs.

b

An increase in the number of students graduating with a major in engineering would result in a. a decrease in the supply of engineers that would increase the wage of engineers and decrease the number employed. b. an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed. c. a decrease in the demand for engineers that would decrease the wage of engineers and decrease the number employed. d. an increase in the demand for engineers that would increase the wage of engineers and increase the number employed.

b

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is a. just as efficient. b. less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. c. more efficient since waiting in line reduces the transaction costs of purchasing goods. d. more efficient since waiting in line reduces the cost of the goods to the consumer.

b

Current tax rates are insufficient to finance the benefits promised by both the Social Security and Medicare programs. Are these unfunded promises surprising according to economic theory? a. Yes, political representatives have a strong incentive to levy taxes that are sufficient to cover the cost of all programs they favor. b. No, the unfunded promises reflect the shortsighted nature of the political process. c. Yes, political representatives generally favor balancing the government budget because this is best for the economy. d. No, even though debt financing often makes sense, politicians are reluctant to use it because it will damage their chances of being reelected.

b

Does economic efficiency indicate that all pollution should be eliminated? a. Yes, pollution is bad; it harms both people and the environment, and therefore, it should be eliminated. b. No, at some point, the benefits of still lower levels of pollution will not be worth the additional cost. c. No, pollution does not harm most people, and therefore, we should not worry about it. d. Partially, pollution caused by business firms should be eliminated, but people should still be allowed to pollute if they wan

b

Externalities are fundamentally the result of a. the absence of competition in a market. b. the lack of well-defined or enforced property rights. c. poor information on the part of consumers. d. the presence of significant comparative advantages in production.

b

Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. A tariff on imported steel to protect jobs in the domestic steel industry that raises the cost of many products for consumers would be considered which type of project? a. type A b. type B c. type C d. type D

b

Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely undertake many projects that would be considered inefficient or counterproductive (in other words, do too many of them relative to economic efficiency)? a. type A b. type B c. type C d. type D

b

For activities in which the benefits are concentrated and the costs widespread, governments are likely to undertake a. too little of these activities relative to what would be efficient. b. too much of these activities relative to what would be efficient. c. exactly the amount of these activities that would be efficient. d. none of these activities.

b

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to a. an output of the product that exceeds the amount consistent with ideal economic efficiency. b. an output of the product that is less than the amount consistent with ideal economic efficiency. c. an output of the product that equals the amount consistent with ideal economic efficiency. d. product prices that are below the cost of production.

b

If an economic action generates more costs than benefits, the action a. by definition increases the nation's economic welfare. b. should not be undertaken from an efficiency standpoint. c. should be subsidized by the government in order to make sure that it is undertaken. d. is desirable from a public welfare standpoint even though many individuals will be harmed.

b

In 2006, the American Association of Retired Persons (AARP) spent over $70 million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics, the term used to describe such activity is a. logrolling. c. influence peddling. b. rent seeking. d. redistribution searching.

b

In economics, actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as a. logrolling. c. influence peddling. b. rent seeking. d. redistribution searching.

b

In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources? a. when the benefits are concentrated and the costs are concentrated b. when the benefits are concentrated and the costs widespread c. when the benefits are widespread and the costs are concentrated d. when the benefits are widespread and the costs are widespread

b

Most voters will likely be concerned with a. most issues since most issues have some impact, however slight, on each citizen. b. only a few special issues (those that exert the most impact on the voters' personal welfare). c. most issues since information on most issues can be obtained at a low cost. d. the views of a particular political candidate on all issues.

b

Other things constant, how will a decrease in the wages of teenagers affect the market for fast food hamburgers? a. The supply of fast food hamburgers will increase, leading to an increase in the price of hamburgers. b. The supply of fast food hamburgers will increase, leading to a reduction in the price of hamburgers. c. The supply of fast food hamburgers will decrease, leading to an increase in the price of hamburgers. d. The supply of fast food hamburgers will decrease, leading to a reduction in the price of hamburgers.

b

Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect a. employment will increase to 14 million. b. employment will decrease to 8 million. c. the wage will actually rise to $20 per hour. d. there will be a surplus of 14 million workers.

b

Refer to Figure 4-22. Sellers pay how much of the tax per unit? a. $1.00. b. $1.50. c. $2.50. d. $3.00.

b

Refer to Figure 4-22. The effective price sellers receive after the tax is imposed is a. $1.00. b. $3.50. c. $5.00. d. $6.00.

b

Refer to Figure 5-4. The efficient price and quantity are a. $1.90 and 38 units, respectively. c. $1.60 and 42 units, respectively. b. $1.80 and 35 units, respectively. d. $1.35 and 58 units, respectively.

b

Refer to Figure 5-4. The figure illustrates an industry that generates a. external benefits. c. no externalities. b. external costs. d. economies of scale.

b

Sellers will tend to be most concerned with customer satisfaction when a. it is difficult for the customer to evaluate product quality. b. they depend on repeat customers for most of their business. c. they sell primarily to tourists. d. they are a monopoly protected from competition by government licensing.

b

Senator Blacklung represents a state that grows a significant amount of tobacco. Not only do many of his constituents work for businesses in this industry, but the tobacco firms also make generous contributions to his reelection campaign. According to public choice theory, which of the following bills would Senator Blacklung be most likely to support? a. a bill proposing an increase in the tax on cigarettes to fund urban renewal programs across the nation b. a bill that would provide substantial subsidies for tobacco growers c. a bill proposing increased funding for a national antismoking awareness campaign financed by an increase in the tax on cigarettes d. a bill that would prohibit senators from accepting campaign contributions from firms who are involved in the production or sale of tobacco products

b

Senator Dogood is pushing for the construction of a new military base in his state even though, from the standpoint of national security, it is clear that there are better places to locate the new military base. Economic theory would suggest that Senator Dogood is a. acting irrationally; he must not know that the base would be better located in a different state. b. acting rationally; he realizes that constructing the base in his state will increase his chances of getting reelected. c. acting rationally if the country is currently at war but is acting irrationally if the country is not at war. d. trying to do what is best for the country.

b

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a a. external benefit. c. external cost. b. public good. d. repeat purchase item.

b

Suppose paper pulp mills are permitted to emit harmful pollutants, free of charge, into the air. How will the price and output of paper in a competitive market compare with their values under conditions of ideal economic efficiency? a. The price will be too high, and the output will be too large. b. The price will be too low, and the output will be too large. c. The price will be too low, and the output will be too small. d. The price will be too high, and the output will be too small.

b

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good, a. buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of the demand and supply curves. b. sellers will bear a larger share of the tax burden. c. the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. d. buyers will bear a larger share of the tax burden.

b

Taxes create deadweight losses because they a. reduce profits of firms. b. distort incentives. c. cause prices to rise. d. create revenue for the government.

b

The branch of economics that applies the principles and methodology of economics to the operation of the political process is known as a. private choice analysis. c. government operations analysis. b. public choice analysis. d. policy preference analysis.

b

The government sometimes provides public goods because a. private markets are incapable of producing public goods. b. free-riders make it difficult for private markets to supply the efficient quantity. c. markets are always better off with some government oversight. d. external benefits will accrue to private producers.

b

The laws that make it illegal for firms to collude or attempt to monopolize a market are known as a. competition laws. c. profit margin laws. b. antitrust laws. d. polygamy laws.

b

The market pricing system corrects an excess supply by a. raising the product price and increasing producer profits. b. lowering the product price and decreasing producer profits. c. raising the product price and decreasing producer profits. d. lowering the product price and increasing producer profits.

b

The more elastic the supply of a product, the more likely it is that the a. burden of a tax on the product will fall on sellers. b. burden of a tax on the product will fall on buyers. c. burden of a tax on the product will fall equally on both buyers and sellers. d. deadweight loss of the tax will be smaller.

b

When a price floor is above the equilibrium price, a. quantity demanded will exceed quantity supplied, so there will be a shortage. b. quantity supplied will exceed quantity demanded, so there will be a surplus. c. the market will be in equilibrium. d. This is a trick question because price floors are generally set below the equilibrium price.

b

When consumers cannot tell the difference at the time of sale between high-quality products and those with defects, strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market. Economists call this a. the curse of advertising. c. the brand name problem. b. the imperfect information problem. d. an open-access resource.

b

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party, a. consumers have a strong incentive to search out those firms offering them the best deal. b. private producers of such goods will have little incentive to control costs and provide them at low prices. c. goods and services will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs. d. the invisible hand will direct consumers and producers toward an efficient level of output.

b

When politicians support policies that benefit small interest groups, such as farmers, at the expense of unorganized, widely dispersed groups, for example, taxpayers or consumers, this is a reflection of the a. tragedy of interest. c. unorganized interest effect. b. special-interest effect. d. shortsightedness effect.

b

Which of the following is the best example of a public good? a. long distance telephone service c. an amusement park b. national defense d. the electric service of a public utility

b

Which of the following most clearly indicates why the franchiser of a product has a strong incentive to monitor the quality of the product among all of the franchised sellers? a. The franchiser has a monopoly on the sale of products in his industry. b. If quality is not maintained, the franchiser will be limited in his ability to sell other franchises and collect franchise fees. c. If quality is not maintained, the government will prohibit future sales of the franchises. d. Franchisers do not gain financially by maintaining quality, but they generally maintain quality anyway because they are consumers as well as producers.

b

Which of the following would tend to increase the price of lumber? a. a technological advance that lowers the cost of cutting timber b. an increase in the demand for newly constructed homes c. a decrease in the demand for wooden rocking chairs d. a decrease in the tax imposed on firms who produce lumber

b

Which of the following would tend to increase the wage of coal miners? a. new environmental laws that make it more costly for firms to use coal in their production process b. an increase in the price of oil, a substitute for coal c. a decrease in the demand for coal d. an increase in the supply of coal miners

b

According to the special-interest effect, which of the following groups is least likely to have a significant influence on the political process? a. the American Federation of Labor c. non-union employees b. the National Assoc. of Manufacturers d. the American Medical Association

c

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices a. discourage the flow of these items into the area. b. encourage consumers to purchase the items even if they do not plan to use them. c. help to direct the items toward their highest valued uses. d. do all of the above.

c

Brand names such as "Nabisco" or "Sony" a. raise the cost of goods because they require advertising to make consumers aware of the brand name and, therefore, generally increase the price of products to consumers without producing any benefit to them. b. generally convey little information about a product to consumers. c. benefit consumers by assuring them of a known quality level when they buy a product that they have little previous first-hand knowledge about. d. provide the most value to consumers for goods that are repeat-purchase items.

c

Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true? a. Relative to economic efficiency, output will be too large and the price too low. b. Relative to economic efficiency, output will be too large and the price too high. c. Relative to economic efficiency, output will be too small and the price too low. d. Relative to economic efficiency, output will be too small and the price too high.

c

Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely fail to undertake many projects that would be considered efficient or productive (in other words, do too few of them relative to economic efficiency)? a. type A b. type B c. type C d. type D

c

Ginny is the owner of a small business, and she is 35 years old. She doesn't smoke cigarettes, and she often spends her weekends with her family camping at the local Greentree state park. According to public choice theory, which of the following four politicians for a public office would Ginny be most likely to vote for in the upcoming election? a. Politician A proposes increasing the tax on small businesses and using the money to provide additional benefits for the elderly. b. Politician B proposes increasing the tax on small businesses and using the money to improve the camping facilities at Greentree state park. c. Politician C proposes increasing the excise tax on cigarettes and using the money to improve the camping facilities at Greentree state park. d. Politician D proposes increasing the excise tax on cigarettes and using the money to provide additional benefits for the elderly.

c

How does an additional individual's consumption of a public good, such as an aerial fireworks display, affect the amount of the good available to other consumers? a. The amount available to others will decline. b. The amount available to others will increase. c. The amount available to others is unaffected. d. The amount available to others is eliminated.

c

If production of a good creates external benefits, a competitive market may produce a. less output than would maximize profit. c. less output than is efficient. b. more output than would maximize profit. d. more output than is efficient.

c

In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects? a. The benefits are highly concentrated, and costs are widespread among voters. b. The costs are highly concentrated, and the benefits are widespread among voters. c. Both the benefits and costs are widespread among voters. d. The benefits accrue in the future, while the costs are visible during the current period.

c

Refer to Figure 4-22. The equilibrium price in the market before the tax is imposed is a. $1.00. b. $3.50. c. $5.00. d. $6.00.

c

Refer to Figure 5-4. The inefficient equilibrium price and quantity are a. $1.90 and 38 units, respectively. c. $1.60 and 42 units, respectively. b. $1.80 and 35 units, respectively. d. $1.35 and 58 units, respectively

c

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would a. create a surplus of rental housing. b. promote a rapid increase in the future supply of housing. c. result in poor service and quality deterioration of many rental units. d. lead to a reduction in housing discrimination against minorities.

c

Restrictions that limit sugar imports, subsidies for the construction of sports stadiums, and federal spending on programs like the construction of an indoor rain forest in Iowa all provide examples of government programs a. based on careful analysis of benefits relative to cost. b. designed to redistribute income from the rich to the poor. c. that reflect the political attractiveness of special-interest issues. d. that promote the general welfare.

c

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, a. the demand curve for physicals shifts to the right. b. the supply curve for physicals shifts to the left. c. the quantity demanded of physicals increases and the quantity supplied of physicals decreases. d. the number of physicals performed will increase.

c

The rational-ignorance effect is a result of a. externalities that lead to an excess supply of information. b. the limited incentive of the news media to cover political campaigns. c. the expectation of individual voters that their vote will not be decisive. d. the lack of a college education on the part of most voters in the United States.

c

The term pork-barrel legislation refers to a. government spending programs financed with user charges. b. the exchange between legislators of their votes on issues. c. legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers. d. the actions of legislators who are willing to trade their political votes for campaign contributions from special interest groups.

c

When a price ceiling prevents a higher market price from rationing a good, a. a surplus of the good will develop. b. scarcity of the good will be eliminated. c. non-price factors will play a more important role in the rationing process. d. the future supply of the good will expand rapidly.

c

When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project, a. productive (efficient) projects will tend to be opposed by a majority of voters. b. counterproductive (inefficient) projects will often be favored by a majority of voters. c. projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters. d. democratic political decision making can be expected to work poorly.

c

When voters pay taxes in proportion to the benefits they receive from government projects, a. efficient projects will tend to be opposed by a majority of voters. b. inefficient projects will often be favored by a majority of voters. c. projects that are efficient will tend to be favored by an overwhelming majority of voters. d. democratic political decision making can be expected to work poorly.

c

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot? a. The flu shot is cheaper than the cost of treatment when you get the flu. b. The income of doctors increases when you get the flu shot. c. The flu shot reduces the likelihood others will catch the flu. d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

c

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good? a. Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line. b. Waiting in line imposes a cost on the consumer; paying higher prices does not. c. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output. d. Waiting in line benefits consumers at the expense of producers

c

Which of the following is most likely to lead to the underpricing and overuse of an economic resource? a. Human greed and selfishness. b. Capital markets. c. The absence of an enforceable property right. d. The lack of understanding of pollution and its effects.

c

Which of the following is the best example of a public good? a. a government-run health care system c. national defense b. the Walt Disney World amusement park d. long-distance telephone service

c

Which of the following statements about rent control in New York City is accurate? a. Rent control has proven successful in providing low-cost housing for poor people. b. Rent control has produced an increase in available rental units. c. Many well-to-do people live in rent-controlled apartments. d. All of the above are accurate statements.

c

A free-rider problem exists when a good that has the following characteristic? a. Rivalry in consumption. c. Inelastic demand. b. Elastic demand. d. Nonexcludable.

d

As methods of economic organization, the market and the public sector are similar in which of the following ways? a. Income and power are distributed equally in both sectors. b. In both sectors, economic activity is undertaken only when it satisfies the criterion for economic efficiency. c. In both sectors, economic exchange is completely voluntary. d. Someone must cover the cost associated with the provision of scarce goods in both sectors.

d

Despite being a college graduate, Jack Adams cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Jack is a. irrational. b. considering only the welfare of society and not his own personal interests. c. not intelligent enough to understand the issues. d. making a rational personal choice because knowing these things gives him little personal benefit.

d

Economic efficiency requires that a. individuals produce at their maximum level. b. only long-lasting, high-quality products be produced without regard to cost. c. income be distributed equally among consumers. d. all economic activity generating more benefits than costs be undertaken.

d

Economic theory indicates that the behavior of a. government employees differs from the behavior of employees in the private sector because government employees generally disregard their own personal self-interest when making decisions. b. elected public officials differs from the behavior of all other individuals in society because they are not influenced by private interests. c. individuals when they make decisions about who to vote for is very different from the behavior of these same individuals when they make other types of choices. d. voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector--that incentives matter.

d

Figure 6-2 illustrates the four possibilities of the structure of production and consumption for a good or service. In which case is the incentive of producers to be efficient and the incentive for consumers to economize the weakest? a. A b. B c. C d. D

d

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from a. potato farmers who own land that wouldn't be irrigated by the project. b. taxpayers who would pay for the project. c. consumers of potatoes who might benefit from an expansion in supply and slightly lower potato prices. d. potato farmers who own the land to be irrigated.

d

In a representative democracy, government action results from the a. choices of voters. c. political action of interest groups. b. legislative decisions by politicians. d. complex interaction of all of the above.

d

Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers together on a single bill. Such legislation is called a. market failure legislation. c. public-goods legislation. b. the rational-ignorance effect. d. pork-barrel legislation.

d

Other things constant, a decrease in the demand for computers will a. increase the price of computers. b. increase the quantity supplied of computers. c. increase the demand for computer manufacturing workers. d. decrease the demand for computer manufacturing workers.

d

Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there will be a. an increase in the supply of automobiles causing the price of automobiles to fall. b. an increase in the supply of automobiles causing the price of automobiles to rise. c. a decrease in the supply of automobiles causing the price of automobiles to fall. d. a decrease in the supply of automobiles causing the price of automobiles to rise.

d

Other things constant, if both the benefits and costs of a public-sector activity are widespread among voters, the political process will generally result in the a. rejection of productive activities and acceptance of unproductive activities. b. acceptance of both productive and unproductive activities. c. rejection of both productive and unproductive activities. d. acceptance of productive activities and rejection of unproductive activities.

d

Public choice theory assumes voters, politicians, and other individuals in the public sector are largely motivated by a. a desire to promote the general welfare. b. a desire to meet the conditions of economic efficiency for the economy as a whole. c. altruism or the good of the public as a whole. d. personal self-interest.

d

Refer to Figure 4-18. If the government imposes a price ceiling of $2.00 in this market, the result is a a. surplus of 30 units of the good. c. shortage of 30 units of the good. b. shortage of 20 units of the good. d. shortage of 50 units of the good.

d

Refer to Figure 4-18. The price of the good would continue to serve as the rationing mechanism if a. a price ceiling of $4.00 were imposed. b. a price ceiling of $5.00 were imposed. c. a price floor of $3.00 were imposed. d. All of the above are correct.

d

Refer to Figure 5-4. If the government uses a pollution tax, how much of a tax must be imposed on each unit of production? a. $1.90 b. $1.80 c. $1.60 d. $0.30

d

Special-interest programs are highly attractive to vote-seeking politicians because a. these programs are highly efficient, and therefore, they tend to enhance the general welfare of the populace. b. members of special interest groups favoring these programs are less likely to vote than the taxpayers who pay for them. c. low-income recipients are the primary beneficiaries of special-interest programs. d. members of special interest groups favoring these programs feel strongly about them while most other voters are rationally uninformed about them.

d

When a nuclear-powered electrical plant is permitted to dump radioactive waste at no cost into a recreational waterway lowering the value boaters receive from the waterway, the a. firm's cost of producing electricity will be higher than the community's true opportunity cost. b. firm will tend to produce too little electricity from the viewpoint of economic efficiency. c. community generally receives an external benefit from the production of electricity. d. firm's cost of producing electricity will be lower than the community's true opportunity cost.

d

When production of a good generates external costs, the a. demand curve for the good will overstate the true social benefits from consumption of the good. b. demand curve for the good will understate the true social benefits from consumption of the good. c. supply curve for the good will overstate the true social cost of producing the good. d. supply curve for the good will understate the true social cost of producing the good.

d

Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency? a. Public-sector managers need not fear bankruptcy when operational efficiency is not achieved. b. Public-sector managers seldom receive personal benefits if they find ways to improve the efficiency of their operations. c. Public-sector agencies typically do not face competition. d. All of the above explain why government agencies have little incentive to be efficient.

d

Which of the following is a source of information that helps consumers acquire information about the quality of a good or service? a. brand names c. consumer ratings magazines b.franchising d. all of the above

d

Which of the following is a valid reason for government provision rather than market provision of certain economic goods and services? a. When the government provides economic goods, they are free; costs are only incurred when such goods are provided by private firms. b. Voters tend to be better informed than market consumers. c. Decision makers in the market sector are motivated by self-interest, whereas, political decision makers are primarily motivated by the desire to help others. d. Public goods tend to be undersupplied through the market since it is difficult for potential suppliers to withhold such goods from nonpaying consumers, while the government can use taxes to overcome this problem.

d

Which of the following is the most likely result of an increase in the minimum wage? a. an increase in the employment of unskilled workers b. a decrease in the number of workers seeking minimum wage jobs c. an increase in the demand for unskilled workers d. a decrease in the employment of unskilled workers

d

Which one of the following is a major difference between market and collective action through government? a. Individuals are motivated by personal interests when making market choices, but they will be motivated primarily by the public interest when making collective choices. b. Competitive behavior is present when decisions are made in the marketplace, but competition is absent when choices are made collectively. c. Scarcity constrains output when decisions are made in the market sector, but scarcity is absent when goods are provided by the government. d. In the market sector, there is generally a one-to-one link between payment and consumption; this link is often absent in the government sector.

d