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1、1,Review Questions of the,Textbook,2,Chapter 1 Individuals and,Government,True/False Questions,1. On average, persons in the United States,devote more of their annual budgets to,taxes than they do to food.,T,2. The total share of GDP accounted for by,government spending in the United States,has decl
2、ined significantly since 1980.,F,3,3. Since 1930, the percent of GDP devoted to,government expenditures has nearly tripled.,T,4. Government consumption does not require,resources to be reallocated from private to,government use.,F,5. Transfer payments, including Social Security and,welfare and medic
3、al assistance, account for over,40 percent of federal government expenditures.,T,4,6. Federal grants-in-aid to state and local,governments finance about 20 percent of,annual spending by these governments.,T,7. State and local governments in the United,States spend a bit more than one-third of,their
4、budgets on education.,T,5,8. The federal government obtains about half,of its revenue annually from retail sales,taxes.,F,6,Multiple Choice Questions,1. The real cost of government goods and,services is:,c,a.,money.,b.,taxes.,c.,the private goods and services foregone.,d.,inflation.,7,2. Government
5、goods and services are usually:,a.,not rationed by prices.,a,b.,sold in markets.,c.,made available to persons according to,their willingness and ability to pay.,d.,financed by revenue obtained from sales.,8,3. A mixed economy is one in which:,b,a.,there are no markets.,b.,government activity account
6、s for a,significant proportion of the value of goods,and services produced.,c.,there is no government.,d.,all goods and services are sold in markets.,9,4. Transfer payments by the federal government in,the United States account for about:,d,a.,25 percent of federal government expenditures.,b.,10 per
7、cent of federal government expenditures.,c.,40 percent of GDP.,d.,40 percent of federal government expenditures.,10,5. Federal government expenditures in the,United States account for about:,a,a.,20 percent of annual GDP.,b.,30 percent of annual GDP.,c.,40 percent of annual GDP.,d.,50 percent of ann
8、ual GDP.,11,6. If the economy is operating at full employment and using,resources efficiently, then an increase in spending for,homeland security this year will:,b,a.,require that resources be reallocated to homeland security,services without sacrificing any alternative goods and,services.,b.,be pos
9、sible if resources are reallocated to homeland,security services, but it will also mean that the output of,some other goods and services will have to fall.,c.,be impossible.,d.,be possible only if there is an improvement in technology,or more resources made available.,12,7. Nonmarket rationing means
10、 that:,e,a.,those willing to pay can buy as much of a product,as they choose.,b.,prices are used to sell products.,c.,goods and services are not rationed by prices.,d.,willingness to pay is not a factor in determining,who can enjoy a good or service.,e.,both (c) and (d),13,8.State and local governme
11、nt expenditure in,the United States accounts for about:,c,a.,30 percent of GDP.,b.,20 percent of GDP.,c.,10 percent of GDP.,d.,5 percent of GDP.,14,Chapter 2,Efficiency, Markets, and,Government,True/False Questions,1. The normative approach to public finance,prescribes certain actions to achieve,pre
12、determined criteria.,T,2. “The government should abolish tariffs to,achieve efficiency” is a normative,statement.,T,15,3. Efficiency is attained when resources are,used each year in such a way that no,further net gain is possible.,T,4. If the marginal social benefit of smoke,detectors exceeds its ma
13、rginal social cost,then additional net gains are possible from,an increased annual smoke detector,production.,T,16,5. Government regulations that require,airlines to serve routes for which the,maximum price that passengers are willing,to pay for a trip fall short of the minimum,price that sellers ar
14、e willing to accept are,likely to cause losses in efficiency.,T,17,6. Government programs can achieve,efficiency when the gains to gainers from,those policies exceed the losses to those,who bear the costs.,T,7. Efficient outcomes are often viewed as,inequitable.,T,18,8. Compensation criteria are use
15、d to argue that,changes in resource allocation should be,made if the gains to some groups outweigh,the losses to others, even though,compensation for losses is not actually,made.,T,19,Multiple Choice Questions,1. Positive economics:,b,a.,makes recommendations designed to,achieve certain goals.,b.,es
16、tablishes cause-and-effect relationships,between economic variables.,c.,is based on value judgments.,d.,can never be used to make predictions.,20,2. If the marginal social benefit of a good exceeds,the marginal social cost at the current monthly,output, then:,a,a.,it will be possible to make buyers
17、of the good,better off without harming sellers of the good.,b.,it will be possible to make sellers of the good,better off without harming buyers of the good.,c.,either (a) or (b),d.,a reduction in monthly output will be required for,efficiency.,21,3. The total social benefit of automobiles equals th
18、e,total social cost at current annual output. Then it,follows that:,b,a.,the annual output of automobiles is efficient.,b.,the annual output of automobiles exceeds the,efficient amount.,c.,less than the efficient annual output of,automobiles is produced.,d.,it is not possible to make buyers of autom
19、obiles,better off without harming sellers.,e.,both (a) and (d),22,4. Diamonds are sold by a monopoly firm that,maximizes profits. Then it follows that:,a,a.,the marginal social benefit of diamonds exceeds,its marginal social cost.,b.,the marginal social cost of diamonds exceeds its,marginal social b
20、enefit.,c.,the price of diamonds equals its marginal social,cost.,d.,the price of diamonds exceeds its marginal social,benefit.,e.,both (c) and (d),23,5. If efficiency has been attained,b,a.,it will be possible to make any one person,better off without harming another.,b.,it will not be possible to
21、make any one,person better off without harming another.,c.,perfect competition must exist.,d.,the opportunity cost of any change in,resource use must be zero.,24,6. Which of the following is a normative statement?,b,a.,When interest rates rise, the quantity of loanable,funds demanded for new mortgag
22、es will decline.,b.,To achieve efficiency, governments should,prevent monopoly in markets.,c.,Unemployment increases during a recession.,d.,When governments increase income tax rates,people work less.,25,7. The extra benefit on one more unit of a,good or service is its:,b,a.,marginal cost.,b.,margin
23、al benefit.,c.,total benefit.,d.,total cost.,26,8. Suppose the efficient output currently prevails in,the market for ice cream. A tax on ice cream con-,sumption will:,c,a.,allow efficiency to continue to prevail in the,market.,b.,result in more than the efficient output in the,market.,c.,result in l
24、ess than the efficient output in the,market.,d.,cause the marginal social cost of ice cream to,exceed its marginal social benefit at the market,equilibrium output.,27,Chapter 3,Externalities and,Government Policy,True/False Questions,1.If a negative externality exists for sales of,gasoline in a comp
25、etitive market, more,than the efficient amount of gasoline will,be sold per year.,T,28,2.When a positive externality exists, benefit to third,parties other than the buyers and sellers of a,good will result from market exchange of the,good.,T,3.When a negative externality exists, the marginal,social
26、cost of annual output sold in a competitive,market will exceed the marginal social benefit of,that output in equilibrium.,T,29,4. If a positive externality is associated with,college enrollment, then when college,instruction is provided in a competitive,market, the marginal social benefit of,enrollm
27、ent will exceed its marginal social,cost in equilibrium.,T,30,5.To internalize an externality, a corrective tax,must be set equal to the marginal external,cost.,T,6. The efficient amount of pollution abatement,is likely to be 100 percent.,F,32,Multiple Choice Questions,1.,A negative externality resu
28、lts from the sale of,firewood in competitive markets. Then it follows,that:,a,a.,the marginal private cost of firewood is less than,its marginal social cost.,b.,the marginal private cost of firewood exceeds its,marginal social cost.,c.,the marginal private benefit of firewood is less,than its margin
29、al social benefit.,d.,the marginal private benefit of firewood exceeds,its marginal social benefit.,33,2.,A positive externality results from the purchase of,smoke detectors. If smoke detectors are sold in a,competitive market,b,a.,the marginal social benefit of smoke detectors is,less than the marg
30、inal private benefit received by,any consumer.,b.,the marginal social benefit will exceed the,marginal private benefit received by any,consumer.,c.,in equilibrium the marginal social cost of smoke,detectors will equal the marginal social benefit.,d.,in equilibrium the marginal social benefit of,smok
31、e detectors is zero.,34,3.,The marginal external cost associated with paper,production is constant at $10 per ton per year.,The,competitive market equilibrium for paper,production is currently 10 million tons per year. A,corrective tax on paper production:,c,a.,will collect $100 million annually.,b.
32、,will collect more than $100 million annually.,c.,will collect less than $100 million annually.,d.,will reduce annual damages to those other than,buyers and sellers of paper to zero.,e.,both (a) and (d),35,4.,Electric power is produced by an unregulated monopoly,in a certain region. The monopolistic
33、 electric power,companys production of electricity results in $10 per,kilowatt hour of pollution damage to parties other than the,buyers of electricity in the region. To achieve efficiency,d,a.,a $10 per kilowatt hour corrective tax is required.,b.,more than $10 per kilowatt hour corrective tax is r
34、equired.,c.,a $10 corrective subsidy is required.,d.,less than $10 per kilowatt hour corrective tax is required.,36,5.,The current competitive market price of fish is $3 per pound.,A chemical producer emits effluent into a lake used by a,commercial fishing firm. Each ton of chemical output causes,a
35、20-pound reduction in the annual catch of the fishing firm.,Assuming that transactions costs are zero and the chemical,firm has the legal right to dump effluent into the lake,a,a.,the fishing firm would be willing to pay up to $60 per ton of,chemicals per year to induce the chemical firm to reduce,c
36、hemical output.,b.,the fishing firm would be willing to pay up to $3 per ton of,chemicals per year to induce the chemical firm to reduce,chemical output.,c.,the chemical firm would never consider the damage caused,by its effluent.,d.,government intervention is required to achieve efficiency.,37,6.,W
37、hich of the following is true if a negative,externality is associated with the sale of gasoline?,d,a.,Third parties other than the buyers and sellers of,gasoline receive benefits.,b.,Third parties other than the buyers and sellers of,gasoline bear costs.,c.,The marginal social cost of gasoline excee
38、ds its,marginal private cost.,d.,both (b) and (c),38,7.,Regulations require that emissions of carbon,monoxide be limited to 1,000 tons per 100 square,miles for all regions of the nation. If the marginal,external cost of the emissions varies among,regions in the nation, then the regulations will:,d,a
39、.,achieve the efficient amount of pollution,abatement.,b.,achieve more than the efficient amount of,pollution abatement.,c.,achieve less than the efficient amount of pollution,abatement.,d.,be likely to achieve more than the efficient,amount of abatement in some regions, but less,than the efficient
40、amount in others.,39,8.,Which of the following is true about command-,and-control regulation that allows businesses to,emit pollutants up to a certain point and bans,emissions after that limit is reached?,c,a.,They are equivalent to emissions charges.,b.,They make firms pay the marginal cost of the,
41、damages done by their emissions, no matter what,the level.,c.,They allow firms to emit some pollutants at zero,charge.,d.,They are likely to minimize the cost of achieving,any given reduction in emissions.,40,Chapter 4 Public Goods,True/False Questions,1.,Bread is an example of a good that is,nonriv
42、al in consumption.,F,2.,The marginal social cost of producing,another unit of a pure public good will,always be positive.,T,41,3.,If the efficient amount of a pure public good is,produced, each person consumes it up to the point,at which his or her marginal benefit equals the,marginal social cost of
43、 the good.,F,4.,If the marginal social cost of a pure public good,exceeds its marginal social benefit, additional,units of the good can still be financed by,voluntary contributions.,F,42,5.,A congestible public good is one for which,the marginal cost of allowing an additional,consumer to enjoy the b
44、enefits of a given,quantity is always zero.,F,6.,It is possible to price a pure public good,and sell it by the unit.,F,43,7.,A Lindahl equilibrium usually has each,participant paying the same tax share per,unit of a public good even though their,marginal benefit of that unit varies.,F,8.,Clubs are a
45、 means of providing congestible,public goods through markets.,T,44,Multiple Choice Questions,1.,A pure public good is:,d,a.,one that can easily be sold by the unit.,b.,one that is nonrival in consumption.,c.,one whose benefits are not subject to,exclusion.,d.,both (b) and (c),45,2.,The nonrival prop
46、erty of pure public goods,implies that the:,b,a.,benefits enjoyed by existing consumers decline as,more consumers enjoy a given quantity of the,good.,b.,benefits enjoyed by existing consumers are,unaffected as more consumers enjoy a given,quantity of the good.,c.,good cannot be priced.,d.,marginal c
47、ost of producing the good is zero.,46,3.,The efficient output of a pure public good is,achieved at the point at which:,b,a.,the marginal benefit obtained by each consumer,equals the marginal social cost of producing the,good.,b.,the sum of the marginal benefits of all consumers,equals the marginal s
48、ocial cost of producing the,good.,c.,the marginal benefit of each consumer equals,zero.,d.,the marginal social cost of producing the good is,zero.,e.,both (c) and (d),47,4.,In a Lindahl equilibrium,e,a.,each consumer purchases a pure public good up,to the point at which his or her marginal benefit,e
49、quals the marginal social cost of the good.,b.,each person pays a tax per unit of the pure public,good equal to his or her marginal benefit.,c.,the sum of the marginal benefits of all consumers,equals the marginal social cost of the good.,d.,both (a) and (c),e.,both (b) and (c),48,5.,The marginal co
50、st of making a given,quantity of a congestible public good,available to more consumers is:,d,a.,always zero.,b.,positive and increasing.,c.,positive and decreasing.,d.,zero at first but eventually becomes,positive and increasing.,49,6.,A major distinction between pure public goods,and pure private g
