1. Government can help eliminate all the following problems EXCEPT
A. underprovision of public goods.
B. economic inequality.
2. An externality can be a
A. marginal cost but not a total cost.
B. benefit but not a cost.
C. cost or a benefit.
D. cost but not a benefit.
3. An externality is a cost or a benefit from an economic transaction that falls on
A. people who did not participate in the transaction.
B. consumers of the good but not producers.
C. producers of the good but not consumers.
D. both consumers and producers of the good.
4. The external cost of a good
A. is the cost from a transaction imposed on people who did not participate in the transaction.
B. equals its total cost minus its consumer surplus.
C. equals its total cost minus its producer surplus.
D. equals its total cost minus its total surplus.
5. The external benefit of a good
A. is the gain from a transaction falling on people who did not participate in the transaction.
B. equals its consumer surplus.
C. equals its total surplus.
D. equals its producer surplus.
6. An example of an activity that generates an external cost is
A. planting flowers along an interstate highway.
B. dumping soapsuds into a trout stream.
C. eating an apple.
D. national defense services.
7. An example of an externality occurs when a chemical factory
A. produces fertilizers that do not help plants grow.
B. overworks its employees.
C. produces fertilizers that kill plants rather than feed them.
D. dumps waste in a river upstream from a popular fishing spot.
8. When people decorate the exteriors of their homes with colored lights, they create ________ for the motorists who pass by.
A. an external benefit
B. a competitive good
C. an excludable good
D. a public good
9. Beautification of the national highways through the planting of shrubs and wildflowers will
A. benefit even people who do not help pay.
B. provide a flow of services that involve excludable consumption.
C. be profitable for a private landscaping company because they can charge passing drivers.
D. provide a flow of services that are rival in consumption.
10. Market failures can result from
A. external benefits and external costs.
B. neither external benefits nor external costs.
C. external costs but not external benefits.
D. external benefits but not external costs.
11. When a private market uses resources inefficiently, ________ exists.
A. market failure
B. resource failure
C. perfect competition
D. monopoly always
12. The theory of public choice
A. explains the allocation of a good among free riders.
B. is the theory of the consumer marketplace.
C. is the theory of the political marketplace.
D. explains the allocation of private goods.
13. The producers in the political marketplace are the
D. None of the above because there are no producers in the political marketplace.
14. A public choice theory of government behavior emphasizes that government acts
A. primarily to redistribute wealth from the rich to the poor.
B. in the long-run interest of voters.
C. as determined by voters, politicians, and bureaucrats interacting in a political marketplace.
D. to eliminate waste and achieve an efficient allocation of resources.
15. Public choice theory explains that politicians
A. maximize their campaign contributions.
B. maximize the size of the deadweight loss.
C. eliminate waste and allocate resources in the social interest.
D. are the entrepreneurs in a political marketplace.
16. According to economic models of public choice, the objective of politicians is to
A. maximize free-ridership.
B. get elected and remain in office.
C. promote the social interest.
D. maximize total public utility.
17. Officials who are appointed to work in agencies are
18. In economic models of public choice, ________ maximize their utility by ________.
A. politicians; accepting campaign contributions
B. bureaucrats; maximizing the budgets of their departments
C. politicians; debating government policies
D. voters; demanding a constant tax rate
19. According to public choice theory, the larger a bureau’s budget
A. the greater is the chance that lobbyists will not be successful.
B. the lower is the prestige of the bureau’s director.
C. the greater is the prestige of the bureau’s director.
D. the lower is the chance of mismanagement and waste.
20. When all choices made by voters, politicians, and bureaucrats are compatible and no group can improve its position by making a different choice, there is a ________.
A. law-making marketplace
B. political equilibrium
C. government equilibrium
D. majority government