Quiz 2

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Chapter 5: Public Spending and Public Choice

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Quiz 2

Quiz 2

This activity contains 10 questions.

Your friend throws a lit cigarette out of his window and starts a brush fire. This is an example of

a demerit good.an effluent fee.a negative externality.a positive externality.

Assume there is a negative externality in the production of steel. If we force the steel producers to consider the social costs of their actions, then this would

increase the supply of steel, raise its price, and decrease the equilibrium amount traded.increase the supply of steel, raise its price, and increase the equilibrium amount traded.decrease the supply of steel, raise its price, and decrease the equilibrium amount traded.decrease the supply of steel, lower its price, and increase the equilibrium amount traded.

All of the following are characteristics of public goods except:

rival consumption.the free rider problem.non-excludability.non-rival consumption.

Goods that are determined to be socially desirable through the political process are known as

transfers-in-kind.merit goods.demerit goods.incentive goods.

A national park and national defense are alike in that:

the non-exclusion principle applies to them.they are private goods.the principle of rival consumption applies to them.more and more people can use these goods at a lower cost.

In the decision making process for markets and the public sector:

the market system is run by proportional voting rules and the public sector is run by majority rule.dollars spent count as votes in the market system, but in the public sector one person gets one vote.the spending of dollars can indicate intensity of want, but political voting does not.all of the above are true.none of the above are true.

All of the following are examples of merit goods except

aspirin.cigarettes.museums.concerts.

Which of the following statements is true about the private market sector and the public sector?

The private market sector faces scarcity but the public sector does not.The incentive structure is the same in both sectors.Competition occurs in the private market sector but not in the public sector.The price charged by the private market sector is positive while the price charged in the public sector is zero.The opportunity cost of goods produced in the private market sector is positive while the opportunity cost of goods produced in the public sector is zero.

Graph of demand and supply with price P and quantity Q at equilibrium

In the figure above, P and Q indicate the socially optimal price and quantity of a good. In the case of a good that generates positive externalities, the market price would be ___________ P and the market quantity would be _____________ Q, while in the case of a good that generates negative externalities, the market price would be ___________ P and the market quantity would be ____________ Q.

higher than; higher than; lower than; lower thanequal to; lower than; higher than; equal tolower than; equal to; higher than; equal tolower than; lower than; lower than; higher thanlower than; lower than; higher than; higher than

Payments that are in the form of actual goods and services rather than cash are known as

external goods.merit goods.public goods.demerit goods.transfers-in-kind.private goods.

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