Practice Questions: Micro Test #5
1. If an excise tax is imposed on tires, then…
a. the
price of tires will increase if demand is price inelastic.
b. the
price of tires will decrease if demand is price inelastic.
c. the
quantity demanded of tires will increase if demand is price elastic.
d. the
total amount of money spent on tires will increase is demand is price elastic.
e. the total amount of
money spent on tires will decrease is demand is price inelastic.
2. If Jack's consumption of a good diminishes
the benefits Jill receives as a consumer of the good, the good is…
a. rival
b. non-rival
c. exclusive
d. non-exclusive
e. divisible
f. indivisible
The next two questions refer to the
following graph.
3. Assuming that B represents the socially
optimum output of a good and A represents the current equilibrium output of the
good, then the figure above indicates that there is/are…
a. Spillover
benefits from the production of this product.
b. Spillover
costs from the production of this product.
c. An
overallocation of resources to the production of this product.
d. A
negative externality from the production of this product.
e. No
spillover costs or benefits.
4. If the government wanted to correct this
externality with a subsidy to the consumer, then…
a. the
demand curve would shift from D1 to D.
b. the
supply curve would shift from S to S1.
c. the
supply curve would shift from S1 to S.
d. the
demand curve would shift from D to D1.
e. none
of the above would occur.
5. Which of the following statements is not true?
a. Proportional
taxes take an equal percentage of income from all income groups.
b. Examples
of transfer payments are government expenditures on highways and the military.
c. The
private sector includes business and consumers.
d. Government
purchases are exhaustive because they involve direct resource use.
e. Tariffs
are taxes levied on goods involved in international trade.
6. A see-saw in a town owned park would be best
classified as…
a. a
private good.
b. a
quasi-public good.
c. a
public good.
d. none of the above.
7. If the production of a good creates positive
externalities, the private market will provide…
a. too
much of the good at too low a price.
b. too
much of the good at too high a price.
c. too
little of the good and overallocate resources to its production.
d. too
little of the good and underallocate resources to its production.
e. the right amount of
the good at the correct price.
8. During the early 1970's, the
federal government proposed that new and stricter standards be established for
sulfur dioxide emissions. Since the
burning of coal produces large amounts of sulfur dioxide, these new standards
would have especially affected coal burning firms because new equipment to
lower emissions would have forced costs up.
The President of the United Mine
Workers Union protested the proposed standards on the grounds that they would
"drive public utilities and other firms that burn coal to nuclear
reactors."
This situation suggests that…
a. coal
was a cheap fuel partly because users could avoid some of the costs of burning
coal.
b. government intervention
would have concealed the true economic advantages of
cheap coal.
c. the sulfur dioxide standards, while well
intended, were too strict to be economically practical.
d. miners would have
preferred a tax on coal rather than the sulfur dioxide standards.
9. Which of the following
least fits the concept of a public good?
a. National defense.
b. Free health clinics.
c. A sidewalk.
d. A new car.
10. The private sector of a market economy is
unlikely to provide a sufficient amount of a public good like national defense
because… (choose the best available answer)
a. national defense does
not benefit individuals.
b. private firms will
provide national defense less efficiently than the government.
c. consumers are poorly informed
about the benefits of national defense.
d. it is impossible to
exclude the benefits from persons who do not pay for it.
11. The more elastic the demand
for a commodity on which a specific excise tax is levied…
a. the greater the after
tax price increase.
b. the less the after
tax price increase.
c. the more elastic the
associated supply curve.
d. the less the
reduction in the quantity produced.
12. A government budget deficit
exists when…
a. government spending exceeds
government revenues.
b. government spending
is increased.
c. the national debt is
decreasing.
d. taxes are reduced.
13. Historically, which one of the following has not been a guiding principle of the federal government's
economic action?
a. Government
production of goods and services should be undertaken when private enterprise
is failing to meet the needs of society.
b. If the government is
going to provide a service, it is better if it does so at a federal level.
c. Government should
create a favorable environment in which businesses can thrive.
d. Whenever possible,
the government should avoid interfering in the free operation of the market.
14.
A characteristic of most public goods is that they
a.
provide
benefits only in social settings.
b.
are
most efficiently produced by a single seller.
c.
can
be produced only by the government.
d.
are
used primarily by low income groups.
e.
are
extremely difficult to exclude from the use of non-purchasers.
15.
From society's point of view, which of the following will be true when the
production of a good
results in pollution?
I. The price of the good
will be too low.
II. The
price of the good will be too high.
III. The
output of the good will be too low.
IV. The
output of the good will be too high.
a.
II
only
b.
IV
only
c.
I
and IV only
d.
I
and III only
e.
II
and IV only
16.
A perfectly competitive industry produces a positive externality along with its
output. In order to
achieve an efficient allocation of resources,
the government should
a.
subsidize
the industry.
b.
tax
the industry.
c.
not
impose any restrictions because the industry is perfectly competitive.
d.
either
tax or subsidize the industry depending on the severity of the pollution.
e.
regulate
the industry so that its pollution level is zero.
17.
The judgment on whether a tax is regressive, proportional or progressive is
based on the comparison
of the amount of tax with the
a.
tax
rate.
b.
value
of the item being taxed.
c.
the
taxpayer's income.
d.
the
tax base.
e.
distribution
of income.
18.
What does market failure mean?
19.
What are the different forms of market failure?
20.
How will the market-based tradable permits approach to pollution control lead
to the lowest possible
clean-up cost?
21.
What are the accepted roles of our government in the economy?
22.
What is economic freedom?
23.
How can the government influence the allocation of resources?
24.
In order to raise more revenue, what type of goods should the government tax?
25. Provide examples of
both positive and negative externalities, then illustrate both on separate
graphs.