Micro-Chapter 4

The amendment to the U.S. Constitution that granted the federal government the authority to collect income taxes was the

16th.

Government intervention to alter market structure or prevent abuse of market power is the basic purpose of

Antitrust policy

Externalities

Are the costs or benefits of market activities that "spill over" onto third parties.

Which of the following is most likely a private good?

Cars

A "free rider" is an individual who reaps

Direct benefits from someone else's purchase of a public good.

Most of the direct spending at the state government level is on

Education

A public good

Experiences the free-rider dilemma.

Government intervention may be appropriate to correct market outcomes because of

Externalities

Which of the following is an example of a public good?

Flood control.

Government failure will likely arise if

Government officials attempt to maximize their own utility.

Market failure implies that the market mechanism

Leads the economy to the wrong mix of output.

Which of the following is a source of market failure?

Market power: lack of public goods, presence of externalities, inappropriate market power, and inappropriate inequity of income, consumption, or wealth.

Monopolies

May be beneficial to society if they are natural monopolies and are regulated.

The Market

On its own may not always provide the optimal mix of goods and services.

The largest single source of revenue for the federal government is

Personal income taxes.

Cities and other local governments receive most of their tax revenues from

Property taxes.

The federal government's role as the provider of national defense is justified by considerations of

Public goods

When market failure occurs, the role of government is to

Push market outcomes closer to the ideal.

Which of the following is an example of a progressive tax?

The federal income tax.

Which of the following produces external benefits?

The inoculation of college students against the flu.

The principal mechanism for redistributing incomes is

The tax-and-transfer system.

The term market mechanism refers to

The use of market prices and sales to signal desired output.

Which of the following is a sound economic reason why the government should subsidize your college education?

There are external benefits associated with education.

A monopoly occurs when

There is only one producer of a good or service.

The optimal mix of output may not be produced by an economy because of the existence of

Underproduction of public goods.

Air pollution best illustrates

an externality

A natural monopoly is

an industry in which one firm can achieve economies of scale over the entire range of market supply

States receive most of their tax revenues from

sales taxes