Microeconomics/Economics Lesson

The Economics of the Public Sector Questions 1–20: Select the one best answer to each question.
1. Which of the following statements about marginal and average tax rates is correct? A. Marginal tax rates are a better measure of taxpayer sacrifice. B. Average tax rates are a better measure of tax effects on incentives. C. Marginal tax rates are a better measure of tax effects on incentives. D. Average tax rates are used to determine deadweight loss from a tax.
2. Goods that are non-rival in consumption A. are congested in consumption. B. are typically consumed jointly. C. can’t be provided in the private sector. D. are always excludable.
3. To encourage the production of honey, several beekeepers place their beehives in a farmer’s orchards and fields. As the bees gather nectar to make honey, they pollinate the orchards and fields, thereby increasing the yields of the fruit and grain crops. This arrangement results in A. a positive externality that benefits the farmer. B. no significant additional benefit to anyone. C. a positive externality that benefits the consumer. D. a negative externality for which the farmer should be compensated.
4. Which of the following statements is correct? A. Tradable pollution permits exempt a firm from paying for its pollution. B. Pigovian taxes from polluting firms are used to fund pollution permits. C. There are no advantages to allowing a market for pollution permits. D. Tradable pollution permits may be preferred to Pigovian taxes in some cases.
5. Deadweight costs from taxation are associated with A. taxes that influence the decisions that people make. B. taxes that target expenditures on survivor benefits for Social Security. C. taxes that have no efficiency losses. D. lump-sum taxes.
6. When the government reverts to command-and-control policy to solve an externality, it A. is usually the most effective policy option available. B. creates policies that directly regulate behavior. C. usually involves taxing consumption of a commodity. D. typically refers to the Coarse theorem to structure the policy.
7. Which of the following would be considered a non-rival but excludable good? A. A viewing of a movie in a crowded theater B. An ice-cream cone C. A visit to a non-crowded museum D. A fish in the ocean
8. Environmentalists argue that we should protect the environment as much as possible, regardless of the cost involved. Which of the following is one of these costs? A. Lower levels of nutrition and inadequate health care B. A higher standard of living, but less available housing C. Increasing technological advancement More expensive utilities, but lower taxes
9. Which of the following goods would not be subject to the Tragedy of the Commons? A. A small public park C. The game animals in a small forest B. A stream passing through a town D. A fishing hole on private land
10. Which of the following statements about lump-sum taxes is correct? A. Lump-sum taxes are most frequently used to tax real property. B. Lump-sum taxes aren’t distortionary. C. Lump-sum taxes are the most distortionary tax. D. Lump-sum taxes are used in taxing sales.
11. In the presence of externalities, society’s interest in a market outcome includes the well-being of A. buyers and sellers only. C. bystanders and regulatory agencies. B. bystanders only. D. buyers, sellers, and bystanders.
12. One reason that markets fail to allocate common resources efficiently is that A. prices change in irregular ways. B. social optimum doesn’t occur at market equilibrium. C. property rights aren’t well established. D. social welfare isn’t maximized at market equilibrium.
13. Which of the following is based on a person’s taxable income? A. Federal tax return C. Social insurance tax B. Tax liability D. Consumption tax
14. Imagine that Steve owns a lion whose roaring annoys Steve’s neighbor Terri. Suppose that the benefit of owning the lion is worth $500 to Steve and that Terri bears a cost of $700 from the roaring. Which of the following is a possible private solution to this problem? A. Terri pays Steve $450 to get rid of the lion. B. Steve pays Terri $650 for her inconvenience. C. Terri pays Steve $650 to get rid of the lion. D. There’s no private solution that will improve this situation.
15. Which of the following would be considered to be a public good? A. A pizza B. Half-time entertainment at the Super Bowl C. A local dance club A light bulb
16. In which of the following situations does an externality exist? A. When the government intercedes in the operation of private markets B. When markets aren’t able to reach equilibrium C. When a firms sells its product in a foreign market D. When one person’s actions affect the well-being of a bystander
17. When goods provided by individuals or firms have problems with “free riders, ”the A. ability to generate revenue from sales is negatively impacted. B. revenue from sales will always be greater than cost. C. revenue from sales must exceed private benefit to the individual (or firm) providing the good or service. D. cost will always exceed the private benefit to the individual (or firm) providing the good or service.
18. When externalities exist, buyers and sellers A. neglect the external effects of their actions, and the market equilibrium is efficient. B. don’t neglect the external effects of their actions, and the market equilibrium is efficient. C. neglect the external effects of their actions, and the market equilibrium isn’t efficient. D. don’t neglect the external effects of their actions, and the market equilibrium isn’t efficient.
19. A tax on cigarettes is designed to encourage consumers to consume fewer cigarettes. Which of the following will occur if this tax is imposed? A. Social well-being will improve. B. The burden of this tax will fall entirely on cigarette producers. C. This distortion will cause a deadweight loss. D. The tax will be considered non-distortional.
20. Markets are inefficient when negative externalities are present because A. social costs equal private costs at the private market solution. B. social costs exceed private costs at the private market solution. C. private benefits exceed social costs at the private market solution. D. externalities prevent the market from reaching equilibrium.