Question 1

Question 1 text
The poverty line is adjusted each year to show changes in which of the follo
wing?
I. Cost of living
II. Marginal income tax rate
III. The size of the average family
IV. Net immigration into the U.S.
V. Level of government spending on aid programs such as welfare and food sta
mps
(4 points)
Answer
Question 1 answers
Only statements I, II, and III are correct.
Only statements I and III are correct.
Only statement I is correct.
All statements are correct.
Only statements II and III are correct.
4 points
Question 2
Question 2 text
Jeff Brooks has recently moved into an apartment and has discovered that the
previous tenant forgot to turn off the cable TV service. Jeff plugs his new big
screen into the cable and enjoys the cable service without paying for it. Econo
mists would describe Jeff Brooks as a (4 points)
Answer
Question 2 answers
free rider.
user of a public good.
consumer of toll goods.
user of a common pool resource.
careful consumer.
4 points
Question 3
Question 3 text
When there is an external benefit involved in the production of a good or se
rvice, the marginal social cost is (4 points)
Answer
Question 3 answers
higher than the average variable cost.
higher than the marginal private cost.
higher than the marginal variable cost.
lower than the marginal private cost.
the same as the marginal private cost.
4 points
Question 4
 Question 4 text
To promote private sector investment, a good or service can be made more att
ractive by making it more (4 points)
Answer
Question 4 answers
expensive.
rival.
non-rival.
excludable.
non-excludable.
4 points
Question 5
Question 5 text
Pollution occurs in the environment because (4 points)
Answer
Question 5 answers
All of the above.
the marginal social cost of preventing all of it is greater than
the marginal social benefit of preventing it.
it is a by-product of producing goods and services we want and n
eed.
it can be a natural event such as a volcanic eruption.
the market economy encourages producers to externalize some of t
heir costs.
4 points
Question 6
Question 6 text
For a commodity with a perfectly inelastic demand curve, an increase in a ta
x on that product implies a (an) (4 points)
Answer
Question 6 answers
increase in the production and a reduction in the price.
increase in the price with no change in the production.
increase in the production with no change in the price.
increase in both the production and the price.
decrease in the production and an increase in the price.
4 points
Question 7
Question 7 text
Fly ash from a thermal power utility is settling in the surrounding fields a
nd destroying the barley that farmers have planted there. The law is on the farm
ers' side, but the price of eliminating the fly ash pollution is greater than th
e price of the barley that is destroyed. A Coase solution would suggest that (4
points)
Answer
Question 7 answers
they deal with it in the court.
the farmers force the utility to install clean methods of produc
tion.
 the utility pay the farmers for the price of the barley lost.
the farmers bear the price of the barley lost.
the utility forces the farmers to pay for the clean methods of p
roduction.
4 points
Question 8
Question 8 text
Products with positive externalities are underconsumed, thus creating a mark
et failure. How can the government correct this failure?
I. By taxing the output of the product to increase tax revenue
II. By paying subsidies to the producers, to lower the cost of the product t
o potential buyers
III. By reducing the marginal social benefit of the product, thus eliminatin
g the externality
IV. By requiring producers to manufacture more of the product
V. By producing it themselves and distributing it free or at very low cost t
o consumers
(4 points)
Answer
Question 8 answers
Only statements II and V are correct.
All statements are correct.
Only statements I and IV are correct.
Only statements I, III, and IV are correct.
Only statements III and IV are correct.
4 points
Question 9
Question 9 text
Individuals move from one income quintile to another, due to a change in (4
points)
Answer
Question 9 answers
their aspirations for luxury goods.
the household composition.
the household composition and the income.
the government policy.
the income.
4 points
Question 10
Question 10 text
Daleview has a cable television service provider. Nonsubscribers are not per
mitted a free ride. This means that (4 points)
Answer
Question 10 answers
bans viewing by nonsubscribers.
operates in the same fashion as the regular network stations tha
t gain their revenue through the sale of advertising time on the air.
the service provider helps subscribers access channels.
helps nonsubscribers access channels.
forces nonsubscribers to subscribe.
4 points
Question 11
Question 11 text
If a species is threatened with extinction, economists would predict that (4
points)
Answer
Question 11 answers
greedy or mean people are again ruining the environment.
there has been too much government regulation of the species.
no one has exclusive property rights to the species.
there was no information available about this species until it w
as too late.
clearly defined property rights to the species exist.
4 points
Question 12
Question 12 text
Firm X is polluting the water of the Dale Lake and the residents of Dale Cit
y are facing externalities. This means that the residents (4 points)
Answer
Question 12 answers
have to pay a higher price for goods produced by firm X.
get the benefit of a government grant.
have to pay a lower price for goods produced by firm X.
bear the cost of pollution, even though they are not directly in
volved its production.
have to pay an environmental tax.
4 points
Question 13
Question 13 text
Passive smoke is an example of a negative externality. To reduce this negati
ve externality, the government should (4 points)
Answer
Question 13 answers
ban the production of cigarettes and other tobacco-related goods
.
impose taxes on cigarettes and encourage less cigarette producti
on.
reduce taxes on cigarettes and encourage more cigarette producti
on.
grant subsidies to tobacco companies and encourage more cigarett
e production.
grant subsidies to tobacco companies and discourage more cigaret
te production.
4 points
Question 14
 Question 14 text
If there are positive externalities involved with the delivery or consumptio
n of a product, the level of output will be (4 points)
Answer
Question 14 answers
more than the efficient amount of production.
decided by the imposition of government quota.
dictated by public demand.
equal to the efficient amount of production.
less than the efficient amount of production.
4 points
Question 15
Question 15 text
Assume that the state of Florida has a 40 cent per gallon gasoline tax. Kare
n makes $60,000 per year and buys 1,000 gallons of gas each year. Hank makes $30
,000/year and buys 700 gallons of gas each year. If these two individuals are ty
pical, is the state's gasoline tax progressive, proportional, or regressive, and
why? (4 points)
Answer
Question 15 answers
The tax is regressive because as your income rises, you pay a lo
wer percentage of your income in the tax.
The tax is proportional because everyone pays the same 40 cent p
er gallon rate.
The tax is progressive because as the amount of gas purchased in
creases, the amount of money paid in the tax increases.
The tax is regressive because as your income falls, you pay a lo
wer percentage of your income in the tax.
The tax is progressive because as income increases, you pay more
in the tax.
4 points
Question 16
Question 16 text
Virtually all economists agree that sales taxes are regressive, and the burd
en of the sales tax falls most heavily on those with lower incomes. Most conside
r this to be unfair. Which of the following statements correctly explain why mos
t states have a sales tax?
I. The sales tax gives the poor an incentive to work harder.
II. There are more poor people, so to have them pay their fair share, they h
ave to pay a higher percentage.
III. The sales tax is relatively easy for the state and local governments to
collect.
IV. If the rich pay most of the income taxes in America, then the poor can p
ay the sales tax.
V. States without sales taxes tend to have the lowest average incomes.
(4 points)
Answer
Question 16 answers
 Only statements I and V are correct.
Only statements II and V are correct.
Only statement III is correct.
Only statements I and IV are correct.
All statements are correct.
4 points
Question 17
Question 17 text
If government wished to tax us based on consumption of goods and services (p
erhaps to reward savers over spenders), it should institute a (an) (4 points)
Answer
Question 17 answers
property tax.
sales tax.
profits tax.
payroll tax.
income tax.
4 points
Question 18
Question 18 text
Which of the following is an example of a negative externality? (4 points)
Answer
Question 18 answers
Your father is fed up with his new lawn mower that won't start.
Your English Literature teacher adores her new pen.
Your neighbor's new heating system is not working properly.
Your new sweater fades after the first wash.
Your sounding the horn on your new BMW sport car wakes up the en
tire neighborhood.
4 points
Question 19
Question 19 text
A new children's park is built by the city of Highland. This park is a good
that has (4 points)
Answer
Question 19 answers
exclusion and rival non-shared consumption.
nonexclusion and non-rival shared consumption.
exclusion and non-shared consumption.
nonexclusion and non-shared consumption.
exclusion and non-rival non-shared consumption.
4 points
Question 20
Question 20 text
The distribution of income in an economy can be graphically shown by the (4
points)
Answer
Question 20 answers
 circular flow model.
poverty/income Curve.
Lorenz curve.
Keynesian model.
equation of exchange.
4 points
Question 21
Question 21 text
This graph is set to the x-axis of Quantity and the y-axis of Price. It show
s the downward sloping demand curve and two upward
Assume that the government has created a per unit tax on the production of a
product, whizbangs, as illustrated in figure 5-1, above. Which of the following
statements about this action is true?
I. This action was taken to increase output and cure a positive externality.
II. This action was taken to decrease production and reduce a negative exter
nality.
III. This tax will increase the price and reduce the quantity produced.
IV. This tax will reduce the abuse of a toll resource.
V. The seller will bear the entire burden of this tax.
(4 points)
Answer
Question 21 answers
Only statement II is correct.
Only statements II and IV are correct.
Only statements II and III are correct.
All statements are correct.
Only statement III is correct.
4 points
Question 22
Question 22 text
A Coase solution to a problem of externality ensures that a socially efficie
nt outcome is to (4 points)
Answer
Question 22 answers
stop production if there is any externality.
internalize the externality through taxes.
internalize the externality through subsidies.
maximize the joint welfare, irrespective of the right of ownersh
ip.
invite other private partners to share the burden of externality
.
4 points
Question 23
Question 23 text
The water of the Dale Lake has tested positive for arsenic and, in all proba
bility, will affect a large section of the population, especially pregnant women
. What will happen to the marginal benefit of abatement curve? (4 points)
Answer
Question 23 answers
It will shift to the right.
It will shift to the left.
It will become horizontal.
It will become vertical.
It will remain unchanged.
4 points
Question 24
Question 24 text
New greenbelt areas have been created to beautify the grounds around Tampa P
ower and Light Company. The green cover has created an external benefit for the
citizens of Tampa. To incorporate the cost of this benefit, an economically effi
cient allocation of resources would result in (4 points)
Answer
Question 24 answers
a decrease in the price of the firm's output.
an increase in the price of the firm's output.
no change in the price or the quantity.
a decrease in the quantity of the firm's output.
a decrease in the price and an increase in the quantity of the f
irm's output.
4 points
Question 25
Question 25 text
Which situation does not require government interference? (4 points)
Answer
Question 25 answers
An oil spill has spread along the coast of Alaska.
Obesity is increasing in the middle-income group.
Excessive electronic dumping has increased the risks of radiatio
n.
Increasing numbers of ATVs are increasing the level of carbon mo
noxide in the air.
Salt brine pollution is threatening the coastal mangrove vegetat
ion.
4 points
Question 26
Question 26 text
This graph is a Lorenz curve. It is set to the x-axis of Population by quint
ile and the y-axis of Cumulative Personal Income. T
Which of the following statements about figure 5-2 are correct?
I. The further lines A and B are apart, the greater the income inequality.
II. Line A represents the income distribution in the economy; line B represe
nts completely equal distribution.
 III. If line B is closer to A, that indicates a decrease in inequality of in
come distribution.
IV. The fifth quintile will have the largest share of income.
V. The first quintile will have the largest share of income.
(4 points)
Answer
Question 26 answers
Only statements II and V are correct.
Only statements I, III, and IV are correct.
Only statements I and V are correct.
Only statements I and II are correct.
Only statements I, III, and V are correct.
4 points
Question 27
Question 27 text
Angus cattle and American buffalo are both animals that can provide humans w
ith food and hides for shoes and clothing. Buffalo nearly became extinct in Nort
h America. Angus cattle were never endangered. Which of the following statements
about these facts is correct?
I. There are clear property rights to the cattle, but not to the buffalo.
II. Buffalo meat was in greater demand than Angus steaks.
III. Ranchers have an incentive to protect and nurture the Angus cattle.
IV. Buffalo were public goods; angus cattle were private goods.
V. Buffalo were private goods; angus cattle were public goods. (4 points)
Answer
Question 27 answers
Only statement II is correct.
All statements are correct.
Only statements I, III, and V are correct.
Only statement III is correct.
Only statements I, III, and IV are correct.
4 points
Question 28
Question 28 text
Which is an acceptable market method of regulating negative externalities? (
4 points)
Answer
Question 28 answers
Legal action against the source creating the externality
Huge penalty payable to society for the externality
Cash incentive given by the government for creating a positive e
xternality
Tradable pollution credits
Closure of the production unit by government regulation
4 points
Question 29
 Question 29 text
Clam Gulch is a very popular clamming beach in Alaska. On good low tides, cl
ammers can easily gather 60 clams (the state limit). However, cleaning and prepa
ring the clams is a slow and labor-intensive process, if done properly. There is
considerable wastage of this clam resource due to improper preparation. Economi
sts would explain this wastage by saying that (4 points)
Answer
Question 29 answers
clams are free goods and hence subject to the tragedy of the com
mons effect.
All of the above.
clammers need to be taught better preparation methods.
the cost of preparation is too high.
clammers are just lazy and ignorant.
4 points
Question 30
Question 30 text
The advent of decentralized wastewater treatment systems (DEWATs) has reduce
d the marginal cost of abatement of pollution from such facilities. The level of
optimal pollution abatement will (4 points)
Answer
Question 30 answers
decrease.
first reduce and then increase.
increase.
first increase and then reduce.
remain unaffected.