question
Which of the following is an example of a negative externality?
A) Your new sweater fades after the first wash
B) Your English Literature teacher adores her new pen
C) Your neighbor's new heating system is not working properly
D) Your father is fed up with his new lawn mower that won't start
E) Your sounding the horn on your new BMW sports car wakes up the entire neighborhood
A) Your new sweater fades after the first wash
B) Your English Literature teacher adores her new pen
C) Your neighbor's new heating system is not working properly
D) Your father is fed up with his new lawn mower that won't start
E) Your sounding the horn on your new BMW sports car wakes up the entire neighborhood
answer
E
question
What is an acceptable market method of regulating negative externalities?
A) Legal action against the source creating the externality
B) Tradable pollution credits
C) Huge penalty payable to society for the externality
D) Cash incentive given by the government for creating a positive externality
E) Closure of the production unit by government regulation
A) Legal action against the source creating the externality
B) Tradable pollution credits
C) Huge penalty payable to society for the externality
D) Cash incentive given by the government for creating a positive externality
E) Closure of the production unit by government regulation
answer
B
question
Firm X is polluting the water of Dale Lake, and the residents of Dale City are facing externalities. This means that the residents
A) get the benefit of a government grant
B) have to pay an environment tax
C) have to pay a higher price for goods produced by firm X
D) bear the cost of pollution, even though they are not directly involved in its production
E) have to pay a lower price for goods produced by firm X
A) get the benefit of a government grant
B) have to pay an environment tax
C) have to pay a higher price for goods produced by firm X
D) bear the cost of pollution, even though they are not directly involved in its production
E) have to pay a lower price for goods produced by firm X
answer
D
question
A free rider problem can occur when the good or service concerned has
A) exclusion and non-rival shared consumption
B) exclusion and rival consumption
C) nonexclusion and non-rival shared consumption
D) nonexclusion and rival shared consumption
E) been imported
A) exclusion and non-rival shared consumption
B) exclusion and rival consumption
C) nonexclusion and non-rival shared consumption
D) nonexclusion and rival shared consumption
E) been imported
answer
C
question
When people like Oprah Winfrey, Bill Gates, and Tom Cruise pay much higher income tax rate than the average tax payer, the tax system is operating from the
A) flat tax principle
B) ability to pay principle
C) regressive tax principle
D) benefits received principle
E) natural law principle
A) flat tax principle
B) ability to pay principle
C) regressive tax principle
D) benefits received principle
E) natural law principle
answer
B
question
Which situation constitutes a market failure and requires government interference?
A) the demand for butter has decreased due to an increase in the price of margarine
B) the demand for instant noodles has decreased with a rise in income
C) the water of Dale Lake is getting polluted due to factory wastes
D) teenagers are spending more hours watching television
E) people over 40 years of age are reducing their working hours
A) the demand for butter has decreased due to an increase in the price of margarine
B) the demand for instant noodles has decreased with a rise in income
C) the water of Dale Lake is getting polluted due to factory wastes
D) teenagers are spending more hours watching television
E) people over 40 years of age are reducing their working hours
answer
C
question
Which situation does NOT require government interference?
A) increasing number of ATVs are increasing the level of carbon monoxide in the air
B) salt bring pollution is threatening the coastal mangrove vegetation
C) excessive electronic dumping has increased the risks of radiation
D) an oil spill has spread along the coast of Alaska
E) obesity in increasing in the middle-income group
A) increasing number of ATVs are increasing the level of carbon monoxide in the air
B) salt bring pollution is threatening the coastal mangrove vegetation
C) excessive electronic dumping has increased the risks of radiation
D) an oil spill has spread along the coast of Alaska
E) obesity in increasing in the middle-income group
answer
E
question
Pollution occurs in the environment because
A) it can be a natural event such as a volcanic eruption
B) it is a by product of producing goods and services we want and need
C) the marginal social cost of preventing all of it is greater than the marginal social benefit of preventing it
D) the market economy encourages producers to externalize some of their costs
E) all of the above
A) it can be a natural event such as a volcanic eruption
B) it is a by product of producing goods and services we want and need
C) the marginal social cost of preventing all of it is greater than the marginal social benefit of preventing it
D) the market economy encourages producers to externalize some of their costs
E) all of the above
answer
E
question
Products with positive externalities are underconsumed, thus creating a market failure. How can the government correct this failure?
1) By taxing the output of the product to increase tax revenue
2) By paying subsidies to the producers to lower the cost of the product to potential buyers
3) By reducing the marginal social benefit of the product, thus eliminating the externality
4) By requiring producers to manufacture more of the product
5) By producing it themselves and distributing it free or at very low cost to consumers
A) all statements are correct
B) only statements 1,3, and 4 are correct
C) only statements 3 and 4 are correct
D) only statements 2 and 5 are correct
E) only statements 1 and 4 are correct
1) By taxing the output of the product to increase tax revenue
2) By paying subsidies to the producers to lower the cost of the product to potential buyers
3) By reducing the marginal social benefit of the product, thus eliminating the externality
4) By requiring producers to manufacture more of the product
5) By producing it themselves and distributing it free or at very low cost to consumers
A) all statements are correct
B) only statements 1,3, and 4 are correct
C) only statements 3 and 4 are correct
D) only statements 2 and 5 are correct
E) only statements 1 and 4 are correct
answer
D
question
Ms. Peterson buys a blue cardigan sweater from a departmental store in Tampa. Which type of good is the sweater?
A) public good
B) common pool resource good
C) free rider good
D) pure private good
E) toll good
A) public good
B) common pool resource good
C) free rider good
D) pure private good
E) toll good
answer
D
question
The retirement home in Hallyho charges its users for all the services it provides. The home is a
A) pure private good
B) pure public good
C) common pool resource good
D) toll good
E) free rider good
A) pure private good
B) pure public good
C) common pool resource good
D) toll good
E) free rider good
answer
D
question
The expense of public goods is
A) determined by the forces of supply and demand in the product market
B) determined by the forces of supply and demand in the factor market
C) funded by large corporate organizations
D) funded through public finance measures such as taxation
E) funded by charitable trusts
A) determined by the forces of supply and demand in the product market
B) determined by the forces of supply and demand in the factor market
C) funded by large corporate organizations
D) funded through public finance measures such as taxation
E) funded by charitable trusts
answer
D
question
Which of the following CANNOT have free riders?
1) streetlights
2) ticket you have purchased to the latest movie
3) planting, by the Arbor Day Foundation, of new trees next to a group of homes
4) renovation of the town hall
5) the toll road to the airport
A) all of these examples can have free riders
B) only 2 and 5 cannot have free riders
C) only 4 and 5 cannot have free riders
D) only 1 and 3 cannot have free riders
E) only 3 cannot have free riders
1) streetlights
2) ticket you have purchased to the latest movie
3) planting, by the Arbor Day Foundation, of new trees next to a group of homes
4) renovation of the town hall
5) the toll road to the airport
A) all of these examples can have free riders
B) only 2 and 5 cannot have free riders
C) only 4 and 5 cannot have free riders
D) only 1 and 3 cannot have free riders
E) only 3 cannot have free riders
answer
B
question
common pool resources tend to be WHAT through markets.
A) overpriced
B) efficiently priced
C) underconsumed
D) overconsumed
E) preserved
A) overpriced
B) efficiently priced
C) underconsumed
D) overconsumed
E) preserved
answer
D
question
To promote private sector investment, a good or service can be made more attractive by making it more
A) rival
B) non-rival
C) expensive
D) non-excludable
E) excludable
A) rival
B) non-rival
C) expensive
D) non-excludable
E) excludable
answer
E
question
The advent of decentralized wastewater treatment systems (DEWATs) has reduced the marginal cost of abatement of pollution from such facilities. The level of optimal pollution abatement will
A) increase
B) decrease
C) remain unaffected
D) first reduced then increase
E) first increase then reduce
A) increase
B) decrease
C) remain unaffected
D) first reduced then increase
E) first increase then reduce
answer
A
question
If the government wants to increase production of a good to achieve marginal social benefit, then the following policy will most likely be implemented
A) a subsidy so that the firm can operate where marginal private costs equal marginal revenue
B) a tax so that the firm can operate where marginal private costs equal marginal revenue
C) a subsidy so that the firm can operate where marginal social benefit equals marginal social cost
D) a tax so that the firm can operate where marginal social benefit equals marginal social cost
E) none of the above. it will establish a government owned operation
A) a subsidy so that the firm can operate where marginal private costs equal marginal revenue
B) a tax so that the firm can operate where marginal private costs equal marginal revenue
C) a subsidy so that the firm can operate where marginal social benefit equals marginal social cost
D) a tax so that the firm can operate where marginal social benefit equals marginal social cost
E) none of the above. it will establish a government owned operation
answer
C
question
A WHAT is imposed by the government on activities that have positive externalities.
A) subsidy
B) tax
C) property right
D) licensing agreement
E) state regulation
A) subsidy
B) tax
C) property right
D) licensing agreement
E) state regulation
answer
A
question
The establishment of lobster fishing season in the state of Florida is an example of
A) an exclusion good
B) government de-regulation of externalities
C) government regulation of externalities
D) positive externality
E) negative externality
A) an exclusion good
B) government de-regulation of externalities
C) government regulation of externalities
D) positive externality
E) negative externality
answer
C
question
Implementing a speed limit on highways is the government's way of
A) reducing highway usage
B) saving 10 percent of gas consumption
C) avoiding a negative externality
D) avoiding a positive externality
E) achieving a social optimum equilibrium
A) reducing highway usage
B) saving 10 percent of gas consumption
C) avoiding a negative externality
D) avoiding a positive externality
E) achieving a social optimum equilibrium
answer
E
question
The residents of Hallyho face a progressive income tax, which means that they
A) pay a higher percentage of their income in the tax if they earn less
B) pay a lower percentage of their income in the tax if they earn more
C) pay the same percentage of their income in the tax, regardless of their income level
D) pay a higher percentage of their income in the tax if they earn more
E) get an allowance from the state
A) pay a higher percentage of their income in the tax if they earn less
B) pay a lower percentage of their income in the tax if they earn more
C) pay the same percentage of their income in the tax, regardless of their income level
D) pay a higher percentage of their income in the tax if they earn more
E) get an allowance from the state
answer
D
question
The burden of a particular tax is calculated as
A) the total dollars paid in the tax each year
B) the total dollars paid in the tax as a percentage of the amount spent on the product each year
C) the total dollars collected that tax as a percentage of total tax collections by that branch of government
D) the total dollars paid in the tax as a percentage of the payer's income
E) the total dollars paid in that particular tax as a percentage of all taxes paid by the individual
A) the total dollars paid in the tax each year
B) the total dollars paid in the tax as a percentage of the amount spent on the product each year
C) the total dollars collected that tax as a percentage of total tax collections by that branch of government
D) the total dollars paid in the tax as a percentage of the payer's income
E) the total dollars paid in that particular tax as a percentage of all taxes paid by the individual
answer
D
question
Virtually all economists agree that sales taxes are regressive, and the burden of the sales tax falls most heavily on those with lower incomes. Most consider this to be unfair. Which of the following statements correctly explains why most states have a sales tax?
1) The sales tax gives the poor an incentive to work harder.
2) There are more poor people, so to have them pay their fair share, they have to pay a higher percentage.
3) The sales tax is relatively easy for the state and local governments to collect.
4) If the rich pay most of the income taxes in America, then the poor can pay the sales tax.
5) States without sales taxes tend to have the lowest average incomes.
A) all statements are correct
B) only statement 3 is correct
C) only statements 2 and 5 are correct
D) only statements 1 and 4 are correct
E) only statements 1 and 5 are correct
1) The sales tax gives the poor an incentive to work harder.
2) There are more poor people, so to have them pay their fair share, they have to pay a higher percentage.
3) The sales tax is relatively easy for the state and local governments to collect.
4) If the rich pay most of the income taxes in America, then the poor can pay the sales tax.
5) States without sales taxes tend to have the lowest average incomes.
A) all statements are correct
B) only statement 3 is correct
C) only statements 2 and 5 are correct
D) only statements 1 and 4 are correct
E) only statements 1 and 5 are correct
answer
B
question
If the government wished to tax us based on consumption of goods and services (perhaps to reward savers over spenders), it should institute a (an)
A) income tax
B) payroll tax
C) property tax
D) profits tax
E) sales tax
A) income tax
B) payroll tax
C) property tax
D) profits tax
E) sales tax
answer
E
question
The distribution of income in an economy can be graphically shown by the
A) equation of exchange
B) Keynesian model
C) circular flow model
D)poverty/income curve
E) Lorenz curve
A) equation of exchange
B) Keynesian model
C) circular flow model
D)poverty/income curve
E) Lorenz curve
answer
E
question
The poverty line is adjusted each year to show changes in which of the following?
1) Cost of living
2) Marginal income tax rate
3) The size of the average family
4) Net immigration into the U.S.
5) Level of government spending on aid programs such as welfare and food stamps
A) only statement 1 is correct
B) only statements 2 and 3 are correct
C) only statements 1 and 3 are correct
D) only statements 1, 2, and 3 are correct
E) all statements are correct
1) Cost of living
2) Marginal income tax rate
3) The size of the average family
4) Net immigration into the U.S.
5) Level of government spending on aid programs such as welfare and food stamps
A) only statement 1 is correct
B) only statements 2 and 3 are correct
C) only statements 1 and 3 are correct
D) only statements 1, 2, and 3 are correct
E) all statements are correct
answer
A
question
The Lorenz curve is used to determine the
A) market distribution of income in the United States
B) market distribution of capital in the United States
C) market share concentration of a given product
D) market distribution of labor in the United States
E) market distribution of income in the world
A) market distribution of income in the United States
B) market distribution of capital in the United States
C) market share concentration of a given product
D) market distribution of labor in the United States
E) market distribution of income in the world
answer
A
question
Income inequalities in the United States are caused by
1) education.
2) geographic mobility.
3) age and work experience.
4) resource endowment.
A) only 1
B) only 3
C) 1 and 2
D) 1,2, and 3
E) 1, 2, 3, and 4
1) education.
2) geographic mobility.
3) age and work experience.
4) resource endowment.
A) only 1
B) only 3
C) 1 and 2
D) 1,2, and 3
E) 1, 2, 3, and 4
answer
E
question
A WHAT tax would be one of the fastest ways to improve the Gini coefficient of income distribution
A) progressive
B) sales
C) luxury
D) regressive
E) proportional
A) progressive
B) sales
C) luxury
D) regressive
E) proportional
answer
A
question
In an income distribution graph,
1) The "y" axis measures the percentage of the total income earned in the United States.
2) The "x" axis measures the percentage of households in the United States.
3) The Lorenz curve measures and represents the distribution of income.
4) The Lorenz curve is not required in an income distribution graph.
A) only 1
B) only 2
C) 1 and 2
D) 2 and 4
E) 1, 2, and 3
1) The "y" axis measures the percentage of the total income earned in the United States.
2) The "x" axis measures the percentage of households in the United States.
3) The Lorenz curve measures and represents the distribution of income.
4) The Lorenz curve is not required in an income distribution graph.
A) only 1
B) only 2
C) 1 and 2
D) 2 and 4
E) 1, 2, and 3
answer
E
question
Passive smoke is an example of a negative externality. To reduce this negative externality, the government should
A) grand subsidies to tobacco companies and encourage more cigarette production
B) grant subsidies to companies and discourage more cigarette production
C) reduce taxes on cigarettes and encourage more cigarette production
D) impose taxes on cigarettes and encourage less cigarette production
E) ban the production of cigarettes and other tobacco-related goods
A) grand subsidies to tobacco companies and encourage more cigarette production
B) grant subsidies to companies and discourage more cigarette production
C) reduce taxes on cigarettes and encourage more cigarette production
D) impose taxes on cigarettes and encourage less cigarette production
E) ban the production of cigarettes and other tobacco-related goods
answer
D
question
If there are positive externalities involved with the delivery or consumption of a product, the level of output will be
A) more than the efficient amount of production
B) equal to the efficient amount of production
C) less than the efficient amount of production
D) dictated by public demand
E) decided by the imposition of government quota
A) more than the efficient amount of production
B) equal to the efficient amount of production
C) less than the efficient amount of production
D) dictated by public demand
E) decided by the imposition of government quota
answer
C
question
When there is an external benefit involved in the production of a good or service, the marginal social cost is
A) lower than the marginal private cost
B) the same as the marginal private cost
C) higher than the marginal private cost
D) higher than the marginal variable cost
E) higher than the average variable cost
A) lower than the marginal private cost
B) the same as the marginal private cost
C) higher than the marginal private cost
D) higher than the marginal variable cost
E) higher than the average variable cost
answer
B
question
New greenbelt areas have been created to beautify the grounds around Tampa Power and Light Company. The greenbelt areas are an example of
A) the Coase Theorem
B) toll goods
C) external cost
D) external benefit
E) rival goods
A) the Coase Theorem
B) toll goods
C) external cost
D) external benefit
E) rival goods
answer
D
question
Externalities are called market failures because
A) resource allocation decisions are incorrectly made with the externalities present
B) if all costs are not paid by the producer, overproduction will occur
C) if all benefits do not flow to the buyer of the product, underproduction will occur
D) costs and/or benefits will go to people not involved in the transaction
E) all of the above
A) resource allocation decisions are incorrectly made with the externalities present
B) if all costs are not paid by the producer, overproduction will occur
C) if all benefits do not flow to the buyer of the product, underproduction will occur
D) costs and/or benefits will go to people not involved in the transaction
E) all of the above
answer
E
question
A new children's park is built by the city of Highland. This park is a good that has
A) exclusion and non-rival non-shared consumption
B) nonexclusion and non-rival shared consumption
C) exclusion and non-shared consumption
D) nonexclusion and non-shared consumption
E) exclusion and rival non-shared consumption
A) exclusion and non-rival non-shared consumption
B) nonexclusion and non-rival shared consumption
C) exclusion and non-shared consumption
D) nonexclusion and non-shared consumption
E) exclusion and rival non-shared consumption
answer
B
question
Angus cattle and American buffalo are both animals that can provide humans with food and hides for shoes and clothing. Buffalo nearly became extinct in North America. Angus cattle were never endangered. Which of the following statements about these facts is correct?
1) There are clear property rights to the cattle, but not to the buffalo.
2) Buffalo meat was in greater demand than Angus steaks.
3) Ranchers have an incentive to protect and nurture the Angus cattle.
4) Buffalo were public goods; angus cattle were private goods.
5) Buffalo were private goods; angus cattle were public goods.
A) all statements are correct
B) only statement 2 is correct
C) only statements 1, 3, and 4 are correct
D) only statements 1, 3, and 5 are correct
E) only statement 3 is correct
1) There are clear property rights to the cattle, but not to the buffalo.
2) Buffalo meat was in greater demand than Angus steaks.
3) Ranchers have an incentive to protect and nurture the Angus cattle.
4) Buffalo were public goods; angus cattle were private goods.
5) Buffalo were private goods; angus cattle were public goods.
A) all statements are correct
B) only statement 2 is correct
C) only statements 1, 3, and 4 are correct
D) only statements 1, 3, and 5 are correct
E) only statement 3 is correct
answer
C
question
The federal government uses public policy and regulations in the economy in order to
1) ensure fair competition
2) eliminate private property
3) control business transactions
A) only 1
B) only 2
C) only 3
D) 1 and 3
E) 2 and 3
1) ensure fair competition
2) eliminate private property
3) control business transactions
A) only 1
B) only 2
C) only 3
D) 1 and 3
E) 2 and 3
answer
A
question
Ms. X pays a flat tax of 15% on her income of $100,000, while Mr. Y pays a flat tax of 15% on his income of $80,000. Which type of tax is this?
A) effective proportional tax
B) effective progressive tax
C) effective regressive tax
D) nominal tax
E) standardized tax
A) effective proportional tax
B) effective progressive tax
C) effective regressive tax
D) nominal tax
E) standardized tax
answer
A
question
Common traits of those Americans below the poverty line include which of the following?
1) Those likely to be very young or very old
2) Those likely to be a minority or person of color
3) Those more likely to be male than female
4) Those more likely to have low levels of educational attainment
5) Those less likely to be from a single-parent home
A) all statements are correct
B) only statements 1 and 5 are correct
C) only statements 1 and 3 are correct
D) only statements 1, 2, and 5 are correct
E) only statement 4 is correct
1) Those likely to be very young or very old
2) Those likely to be a minority or person of color
3) Those more likely to be male than female
4) Those more likely to have low levels of educational attainment
5) Those less likely to be from a single-parent home
A) all statements are correct
B) only statements 1 and 5 are correct
C) only statements 1 and 3 are correct
D) only statements 1, 2, and 5 are correct
E) only statement 4 is correct
answer
D
question
The Gini coefficient represents the
A) ratio of income between the riches and poorest nations in the world
B) ratio of income between the richest and poorest families in the United States
C) progressive tax system in the United States
D) New York Stock Exchange index
E) ratio of labor per manufacturing industries in the United States
A) ratio of income between the riches and poorest nations in the world
B) ratio of income between the richest and poorest families in the United States
C) progressive tax system in the United States
D) New York Stock Exchange index
E) ratio of labor per manufacturing industries in the United States
answer
B
question
In an income distribution graph, the farther away any point is on the Lorenz Curve,
A) the more equally income is distributed in the United States
B) the more unequally income is distributed in the United States
C) the more unequally distributed income is among nations
D) the more poverty there is in the United States
E) none of the above. The Lorenz Curve measure real gross domestic product
A) the more equally income is distributed in the United States
B) the more unequally income is distributed in the United States
C) the more unequally distributed income is among nations
D) the more poverty there is in the United States
E) none of the above. The Lorenz Curve measure real gross domestic product
answer
B
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