Econ Exam 2 Prep

Front 1

The five economic functions of government in our capitalistic system are

Back 1

providing a legal system, promoting competition, correcting externalities, providing public goods, and ensuring economy wise stability.

Front 2

If there are disputes in an economic arena, then ___ often acts as a "referee" to help settle the dispute.

Back 2

government

Front 3

Antitrust legislation, in theory is suppose to __ competition in the private sector.

Back 3

promote

Front 4

If externalities are an important result of an economic activity, then the price system is

Back 4

inefficient

Front 5

If Ms. Johnson buys an automobile from Toyota, those people not directly involved in the transaction are considered

Back 5

third parties

Front 6

Pollution is an example of __ externality.

Back 6

negative

Front 7

When there are spillover costs, a price system will __ resources to the production of the good in question.

Back 7

overallocate

Front 8

If third parties benefit from a transaction, then __ externalities exists, and the price system will allocate resources __.

Back 8

positive, inefficiently

Front 9

Positive and negative externalities are examples of market

Back 9

failure

Front 10

A government can correct negative externalities by imposing taxes and by __ the industry or firms in question.

Back 10

regulating

Front 11

A government can correct positive externalities by ___,____, and ___.

Back 11

subsidizing production, financing production, and regulation.

Front 12

If a positive externality exists for good B, a price system will produce too __ of good B.

Back 12

little

Front 13

Public goods have four distinguishing characteristics. They are usually __; they can be used by more people at __ additional cost; additional users __ deprive others of the services of a public good; it is very __ to charge individuals based on how much they used the public good.

Back 13

indivisible, zero, do not, difficult.

Front 14

A free rider has an incentive __ for a public good.

Back 14

not to pay

Front 15

government inhibited goods are goods for which society wants to __ production.

Back 15

decrease

Front 16

Because the Medicare program pays a per-unit subsidy for health-care expenses of people covered by the program, the price that they pay for health care services is __ the market price, and the quantity of health care services that they desire o consume is __ the equilibrium quantity.

Back 16

less than, greater than

Front 17

An increase in the number of people covered by Medicare will tend to cause the demand for covered health care services to __ , thereby causing an __ in both the equilibrium and actual quantities of the service demanded and supplied.

Back 17

increase, increase

Front 18

When governments provide subsidies to providers of educational services, the result is that the cost of the last unit of services provided is __ than the marginal value of the services to parents and students.

Back 18

higher

Front 19

Reducing government subsidies paid to public schools cause __ in the quantity of educational services provided by these schools and __, in the quantity of educational services desired by students and their parents.

Back 19

a decrease, a decrease

Front 20

Many government, or political, goods are provided to consumers at a __, price; but the opportunity cost to society of providing government goods is __.

Back 20

zero, positive

Front 21

In contrast to goods sold in private markets, government goods are not __.

Back 21

explicitly priced

Front 22

In the government sector, decisions concerning what goods to produce are determined by __ rule.

Back 22

majority

Front 23

T or F.
In the U.S. economy the government plays only a minor role in resource allocation, because the country is capitalistic.

Back 23

FALSE - even in capitalist countries the government plays a major role

Front 24

T or F
Governments provide a legal system, but this important function is not considered an economic function.

Back 24

FALSE - it is an economic function because by enforcing contracts government can promote trade and commerce.

Front 25

T or F
One aim of antitrust legislation is the promotion of competition.

Back 25

True

Front 26

T or F
If externalities, or spillovers exist then a price system misallocates resources, so that inefficiency exists

Back 26

True

Front 27

T or F
If a negative externality exists, buyers and sellers are not faced with the true opportunity costs of their actions.

Back 27

True

Front 28

T or F
If a positive externality exists when good A is produced, a price system will underallocate resources into the production of good A.

Back 28

True

Front 29

T or F
One way to help correct for a negative externality is to tax the good in question, because that will cause the price of the good to fall.

Back 29

FALSE - A tax will cause the price of the good to rise, which is a movement in the correct direction.

Front 30

T or F
A price system will tend to overallocate resources to the production of free goods, due to the free-rider problem.

Back 30

False - the free rider problem deals with goods that are scarce, but for which the exclusion principle does not work well.

Front 31

T or F
Scarcity exists in the market sector, but not in the public sector.

Back 31

False - Scarcity exists in the public sector too; after all the government uses and allocates scarce goods.

Front 32

T or F
If third parties are hurt by the production of good B and they are not compensated, then too many resources have been allocated to industry B.

Back 32

True

Front 33

T or F
Deciding what is a government-sponsored good and what is a government inhibited good is easily done and does not require value judgments.

Back 33

False - Whether or not a good is a government-sponsored good requires value judgments

Front 34

T or F
The price that Medicare patients pay for covered care that they receive is lower than the market price of that care.

Back 34

True

Front 35

T or F
Not including any administration costs, the direct expense that taxpayers incur in paying the government's share of the total costs of a particular type of care equals the per unit subsidy that the government pays times the quantity of care demanded under the subsidy.

Back 35

True

Front 36

T or F
The price that the supplier of a service covered by Medicare receives is higher than the market price of providing that service.

Back 36

True

Front 37

T or F
If market demand and supply curves have their normal shapes, then the difference between the market price of a healthcare service covered by Medicare and the price that Medicare recipients actually pay is equal to the per unit Medicare subsidy.

Back 37

False - The Medicare subsidy equals the difference between the price that suppliers receive and the price recipients pay.

Front 38

T or F
In recent years, decreases in educational subsidies have generally widened the difference between the cost of the last unit of services provided and the marginal value of the services to parents and students.

Back 38

False - A decrease in a per-unit educational subsidy actually narrows this difference.

Front 39

T or F
Government goods are produced solely in the public sector.

Back 39

False - Governments can also buy privately produced goods for distribution at no charge.

Front 40

T or F
The best way for the government to prevent the underallocation of resources to production of vaccines against diseases is to require producers to set the price of vaccines below the equilibrium price.

Back 40

False - Requiring vaccine producers to set the price of vaccines lower than the equilibrium price results in shortage of vaccines. Preventing under allocation of resources to production of a good that creates external benefits, such as vaccines, requires inducing an increase in demand for the good. Hence, government provision of subsidies in the form of vouchers or rebate coupons would more likely generate an increase in demand for vaccines and a resulting increase in the equilibrium quantity of vaccines produce and consumed.

Front 41

Which one of the following is not an economic function of government.
a.income redistribution
b. providing a legal system
c. ensuring economy wide stabilty
d. promoting competition

Back 41

A.Income redistribution

Front 42

A price system will misallocate resources if

Back 42

externalities exist

Front 43

Which one of the following does not belong with the others?
a. positive externality
b. negative externality
c. government inhibited good
d. public good

Back 43

c. government-inhibited good

Front 44

The exclusion principle

Back 44

does not work for public goods

Front 45

Which one of the following statements concerning externalities is true?
a. if a positive externality exists for good A, A will be overproduced by a price system.
b.if externalities exists, then resources will be allocated efficiently.
c. efficiency may be improved if the government taxes goods for which a positive externality exists.
d. the output of goods for which a positive externality exists is too low, from society's point of view.

Back 45

d. the output of goods for which a positive externality exists is too low, from society's point of view.

Front 46

Which one of the following is not a characteristic of public goods?
a. indivisibility
b. high extra cost to additional users
c. exclusion principle does not work easily
d. difficult to determine how each individual benefits from public goods

Back 46

b. high extra cost to additional users

Front 47

Market failure exists if

Back 47

third parties are injured and are not compensated.

Front 48

Which one of the following will properly correct a negative externality that results from producing good B?
a. subsidizing the production of good B
b. letting the price system determine the price and output of good B
c. forcing buyers and sellers of good B to pay the true opportunity costs of their actions
d. banning the production of good B

Back 48

C. Forcing buyers and sellers of good B to pay the true opportunity costs of their actions

Front 49

Government sponsored and government inhibited goods

Back 49

are not easily classified

Front 50

If Ms.Ayers loves good A, she can convey the intensity of her wants if good A is

Back 50

a private good

Front 51

The free rider problem exists

Back 51

for goods that must be consumed collectively

Front 52

Suppose that the government has been paying a fixed per unit subsidy for a health care service covered by Medicare. Then officials who administer the program tell patients and doctors and other health care providers that they plan to cut the per unit subsidy. Other things being equal, the result will be

Back 52

a rise in the price paid by each Medicare recipient and a reduction in the quantity of the service demanded and supplied.