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Chapter 5: Public Spending and Public Choice

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Quiz 4

Quiz 4


This activity contains 10 questions.

	Market failure occurs when:   the market system fails to allocate resources to each individual according to their abilities. the market economy leads to too few or too many resources going to specific economic activity. the market system fails to allocate an equal share of resources to all individuals. the market system fails to allocate resources to each individual according to their needs.

	A cost or benefit of an economic activity that has an impact on an individual's well-being, even though the individual was not directly involved in the activity, is known as a(n):   externality. capital loss. public good. free-rider.

	Market failure occurs because:   the market system does not make individuals responsible for the private costs/benefits of their actions. the market system forces individuals to consider the social consequences of their actions. the market system forces individuals to consider the social and private consequences of their actions. the market system does not make individuals responsible for the social costs/benefits of their actions.

	Public goods are goods that:   people pay for according to how much they use them. impose a cost or benefit on a third party. people can be excluded from consuming. can be jointly consumed by many people at the same time.

	Economic functions of government include:   income redistribution and the regulation and provision of merit and demerit goods. providing a legal system, allocating public goods, promoting competition, and stabilizing the economy. deciding what to produce, how to produce it and for whom to produce for all sectors of the economy. deciding which states may or may not impose income taxes, charge fees and enforce contracts.

	A pollution tax is the   the change in total external taxes due divided by total taxable income. tax levied on a polluter for discharging effluents. total corporate taxes due divided by total taxable corporate income. total corporate taxes due divided by the change in corporate taxable income.

	All of the following are ways that the government can encourage positive externalities except   produce the good. regulate the production of the good. subsidize the production of the good. let the market dictate the equilibrium price and quantity of the good.

	All of the following are ways that the government can correct for negative externalities except   regulation. create a market to pollute. special taxes. increase the corporate income tax.

	Federal spending differs from state and local spending because:   some states forbid the Federal government from collecting Social Security taxes among their workers. the federal government has responsibilities, like national defense, that local administrations do not have. taxes on imported goods are continually challenged under the principle of "no taxation without representation." states are not allowed to collect personal income taxes.

	One reason that collective and private decision making differ is:   the government sector does not face scarcity issues while the private sector does. private individuals compete and act in their own interest while government bureaucrats do not. individuals working in the government sector face a different incentive structure than those in the private sector. the government's actions do not have an opportunity cost while private actions do.

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