Test bank without answers

Chapter 1

TRUE/FALSE QUESTIONS

1- A universally observed function of government is the establishment of property rights.

2- The costs imposed by government regulations on business firms are included in budget data on
government expenditures.

3- Government consumption does not require resources to be reallocated from private to

government use.

4- Nation without a government don’t have system of courts to administer justice.

5- The objective of the analysis the public finance is to understand the impact of government
expenditures, regulations, taxes, and subsidies on incentives to work, invest, save, and spend
income.

6- The real cost of government goods and services is the value of private goods and services that
must be sacrificed when the resources are transferred to government use.

7- The role of government appear in mixed economy only.

8- The government give subsidies to output market to decrees the goods and services price.

9- Government supplies a considerable amount of goods and services and regulates private
economic activity in pure economy.

10- All exchanges of goods and services take place through markets, with prices determined by free
interplay of supply and demand in mixed economy(f)
MULTIPLE CHOICE QUESTIONS

1. THE REAL COST OF GOVERNMENT GOODS AND SERVICES IS:

A- MONEY.
B- TAXES.
C- THE PRIVATE GOODS AND SERVICES FOREGONE.
D- INFLATION.

2. IF THE ECONOMY IS CURRENTLY OPERATING ON A POINT ON THE PRODUCTION POSSIBILITY

CURVE FOR GOVERNMENT GOODS AND SERVICES VERSUS PRIVATE GOODS AND SERVICES,

A- AN ANNUAL INCREASE IN GOVERNMENT GOODS AND SERVICES CAN BE OBTAINED

WITHOUT ANY SACRIFICE OF ANNUAL PRIVATE GOODS AND SERVICES.
B- IT WILL BE IMPOSSIBLE TO INCREASE ANNUAL OUTPUT OF GOVERNMENT GOODS AND
SERVICES.
C- A DECREASE IN THE ANNUAL OUTPUT OF GOVERNMENT GOODS AND SERVICES WILL
HAVE NO EFFECT ON THE ANNUAL OUTPUT OF PRIVATE GOODS AND SERVICES.
D- A DECREASE IN THE ANNUAL OUTPUT OF GOVERNMENT GOODS AND SERVICES WILL
ALLOW AN INCREASE IN ANNUAL OUTPUT OF PRIVATE GOODS AND SERVICES.

3. GOVERNMENT GOODS AND SERVICES ARE USUALLY:

A- NOT RATIONED BY PRICES.
B- SOLD IN MARKETS.
C- MADE AVAILABLE TO PERSONS ACCORDING TO THEIR WILLINGNESS AND ABILITY TO
PAY.
D- FINANCED BY REVENUE OBTAINED FROM SALES.

4. TAXES:
A- ARE PRICES PAID FOR THE RIGHT TO CONSUME GOVERNMENT GOODS AND SERVICES.
B- ARE COMPULSORY PAYMENTS NOT DIRECTLY RELATED TO THE BENEFITS RECEIVED
FROM GOVERNMENT GOODS AND SERVICES.
C- NEVER AFFECT ECONOMIC INCENTIVES.
D- ARE USED BY PRIVATE FIRMS TO RAISE REVENUE.

5. A MIXED ECONOMY IS ONE IN WHICH:

A- THERE ARE NO MARKETS.
B- GOVERNMENT ACTIVITY ACCOUNTS FOR A SIGNIFICANT PROPORTION OF THE VALUE OF
GOODS AND SERVICES PRODUCED.
C- THERE IS NO GOVERNMENT.
D- ALL GOODS AND SERVICES ARE SOLD IN MARKETS.
6. GOVERNMENT PURCHASES FOR CONSUMPTION AND INVESTMENT:
A- ARE MADE TO ACQUIRE RESOURCES NECESSARY TO PRODUCE GOVERNMENT GOODS
AND SERVICES.
B- ARE DESIGNED TO REDISTRIBUTE PURCHASING POWER AMONG CITIZENS.
C- HAVE INCREASED IN IMPORTANCE AS A PERCENT OF FEDERAL SPENDING SINCE 1959.
D- DO NOT WITHDRAW RESOURCES FROM PRIVATE USE.

7. IF THE ECONOMY IS OPERATING AT FULL EMPLOYMENT AND USING RESOURCES EFFICIENTLY,

THEN AN INCREASE IN SPENDING FOR HOMELAND SECURITY THIS YEAR WILL:

A- REQUIRE THAT RESOURCES BE REALLOCATED TO HOMELAND SECURITY SERVICES

WITHOUT SACRIFICING ANY ALTERNATIVE GOODS AND SERVICES.
B- BE POSSIBLE IF RESOURCES ARE REALLOCATED TO HOMELAND SECURITY SERVICES, BUT
IT WILL ALSO MEAN THAT THE OUTPUT OF SOME OTHER GOODS AND SERVICES WILL
HAVE TO FALL.
C- BE IMPOSSIBLE.
D- BE POSSIBLE ONLY IF THERE IS AN IMPROVEMENT IN TECHNOLOGY OR MORE
RESOURCES MADE AVAILABLE.

8. WHICH OF THE FOLLOWING IS AN EXAMPLE OF A POLITICAL INSTITUTION?

A- A MARKET
B- ELECTIONS WITH WINNERS DETERMINED BY MAJORITY RULE
C- REPRESENTATIVE GOVERNMENT
D- BOTH (B) AND (C)

9. NONMARKET RATIONING MEANS THAT:

A- THOSE WILLING TO PAY CAN BUY AS MUCH OF A PRODUCT AS THEY CHOOSE.
B- PRICES ARE USED TO SELL PRODUCTS.
C- GOODS AND SERVICES ARE NOT RATIONED BY PRICES.
D- WILLINGNESS TO PAY IS NOT A FACTOR IN DETERMINING WHO CAN ENJOY A GOOD OR
SERVICE.
E- BOTH (C) AND (D)

10. THE CITIZEN GIVE THE GOVERNMENT

A- RESOURCES
B- TAXES AND FEES
C- MONEY
D- GOODS AND SERVICES
Chapter 2
TRUE/FALSE QUESTIONS

1- The normative approach to public finance prescribes certain actions to achieve predetermined
criteria.

2- Positive economic analysis is based on underlying value judgments.

3- “The government should abolish tariffs to achieve efficiency” is a normative statement.

4- It is possible for efficiency not to be attained even if all production is carried on without waste.

5- Efficiency is attained when resources are used each year in such a way that no further net gain is
possible.

6- The efficient annual output of any given good is attained if that good is made available in
amounts up to the point at which the total social benefit of the good equals the total social cost.

7- If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional
net gains are possible from an increased annual smoke detector production.

8- Monopoly power causes losses in efficiency because the marginal social benefit of output
exceeds its marginal social cost at the monopoly output.

9- Government regulations that require airlines to serve routes for which the maximum price that
passengers are willing to pay for a trip fall short of the minimum price that sellers are willing to
accept are likely to cause losses in efficiency.

10- Points lying below a utility possibility curve are efficient.

11- Government programs can achieve efficiency when the gains to gainers from those policies
exceed the losses to those who bear the costs.

12- If the marginal social cost of beer production exceeds its marginal social benefit, then more than
the efficient about of beer is being produced.

13- Efficient outcomes are often viewed as inequitable.

14- If it is not possible to make someone better off without harming another, then resource
allocation is efficient.
15- Compensation criteria are used to argue that changes in resource allocation should be made if
the gains to some groups outweigh the losses to others, even though compensation for losses is
not actually made.
Multiple choice questions:

1- Positive economics:
a- Makes recommendations designed to achieve certain goals.
b- Establishes cause-and-effect relationships between economic variables.
c- Is based on value judgments.
d- Can never be used to make predictions.

2- If the efficient output of a good is produced each week, then the:

a- Marginal social benefit of the good equals its marginal social cost each week.
b- Marginal social benefit of the good is at a maximum.
c- Total social benefit of the good is at a maximum.
d- Total social benefit of the good equals its total social cost.

3- If the marginal social benefit of a good exceeds the marginal social cost at the current monthly
output, then:

a. It will be possible to make buyers of the good better off without harming sellers of the
good.
b. It will be possible to make sellers of the good better off without harming buyers of the
good.
c. Either (a) or (b)
d. A reduction in monthly output will be required for efficiency.

4- The marginal social cost of bread exceeds the marginal social benefit at the current weekly
output. Therefore,
a- The marginal net benefit of bread is positive.
b- The output of bread is efficient.
c- A reduction in weekly output of bread is necessary to achieve efficiency.
d- An increase in weekly output of bread is necessary to achieve efficiency.

5- The total social benefit of automobiles equals the total social cost at current annual output.
Then it follows that:
a- The annual output of automobiles is efficient.
b- The annual output of automobiles exceeds the efficient amount.
c- Less than the efficient annual output of automobiles is produced.
d- It is not possible to make buyers of automobiles better off without harming sellers.
e- Both (a) and (d)
6- Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of
eggs are affected in any way when eggs are traded in the market. Then it follows that:
a- The price of eggs equals the marginal social cost of eggs.
b- The price of eggs equals the marginal social benefit of eggs.
c- The price of eggs exceeds the marginal social benefit of eggs.
d- Both (a) and (b)

7- Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:

a- The marginal social benefit of diamonds exceeds its marginal social cost.
b- The marginal social cost of diamonds exceeds its marginal social benefit.
c- The price of diamonds equals its marginal social cost.
d- The price of diamonds exceeds its marginal social benefit.
e- Both (c) and (d)

8- Points on a utility possibility curve represent:

a- A given distribution of well-being between two persons.
b- An efficient allocation of resources.
c- The maximum well-being of any one person, given the resources available and the well-
being of another person.
d- All of the above

9- If efficiency has been attained,

a- It will be possible to make any one person better off without harming another.
b- It will not be possible to make any one person better off without harming another.
c- Perfect competition must exist.
d- The opportunity cost of any change in resource use must be zero.

10- A move from an inefficient resource allocation to an efficient one:

a- Will always be unanimously approved, even if gainers do not compensate losers.
b- Will be unanimously opposed.
c- Will be unanimously approved if gainers compensate losers.
d- Can never result in losers.

11- Which of the following is a normative statement?

a- When interest rates rise, the quantity of loanable funds demanded for new mortgages
will decline.
b- To achieve efficiency, governments should prevent monopoly in markets.
c- Unemployment increases during a recession.
d- When governments increase income tax rates, people work less.
12- Normative economics:
a- Is not based on underlying value judgments.
b- Makes recommendations to achieve efficient outcomes.
c- Establishes cause-and-effect relationships between economic variables.
d- Makes “if…then” type statements and checks them against the facts.

13- The extra benefit on one more unit of a good or service is its:
a- Marginal cost.
b- Marginal benefit.
c- Total benefit.
d- Total cost.

14- If the efficient output of computers is achieved this year, then market price of computers is
equal to:
a- The marginal social benefit of computers.
b- The marginal social cost of computers.
c- The total social cost of computers.
d- The total social benefit of computers.
e- Both (a) and (b)

15- Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream
consumption will:
a- Allow efficiency to continue to prevail in the market.
b- Result in more than the efficient output in the market.
c- Result in less than the efficient output in the market.
d- Cause the marginal social cost of ice cream to exceed its marginal social benefit at the
market equilibrium output.
Chapter 3

TRUE/FALSE QUESTIONS

1- If a negative externality exists for sales of gasoline in a competitive market, more than the
efficient amount of gasoline will be sold per year.

2- If the marginal external cost of pollution increases with the annual output of polluting goods,
then the total external cost will increase at a constant rate with annual output.

3- When a positive externality exists, benefit to third parties other than the buyers and sellers of a
good will result from market exchange of the good.

4- The marginal external benefit of the sale of smoke detectors in a city declines with annual
output. The total external benefit of smoke detectors will therefore eventually become zero.

5- When a negative externality exists, the marginal social cost of annual output sold in a
competitive market will exceed the marginal social benefit of that output in equilibrium.

6- If a negative externality is associated with the sale of wood stoves, then the marginal private
cost of those stoves is less than their marginal social cost.

7- If a positive externality is associated with college enrollment, then when college instruction is
provided in a competitive market, the marginal social benefit of enrollment will exceed its
marginal social cost in equilibrium.

8- At the current level of annual supply of inoculations against polio, the marginal external benefit
of an inoculation is zero. To achieve efficiency, a corrective subsidy must be provided to those
being inoculated.

9- To internalize an externality, a corrective tax must be set equal to the marginal external cost.

10- According to the Coase theorem, corrective taxes are necessary to internalize negative
externalities when the transactions costs of exchanging property rights to use resources are
zero.

11- The efficient amount of pollution abatement is likely to be 100 percent.

12- Pollution rights can be used to price the right to emit pollutants and to provide incentives to
reduce emissions by profit-maximizing firms.
 13- Emissions standards allow businesses to emit waste at zero cost until the limits set by the
standards are reached.

14- The market for sulfur dioxide allowance trading has lowered the cost of achieving a given
reduction in sulfur dioxide emissions by electric power-generating plants.

15- Command-and-control regulation to reduce emissions is likely to be a less costly way of reducing
a given amount of emissions than tradeable emissions permits.

16- When negative externalities exist, perfectly competitive markets produce less than the efficient
output.

MULTIPLE CHOICE QUESTIONS

1- A negative externality results from the sale of firewood in competitive markets. Then it follows
that:
a- The marginal private cost of firewood is less than its marginal social cost.
b- The marginal private cost of firewood exceeds its marginal social cost.
c- The marginal private benefit of firewood is less than its marginal social benefit.
d- The marginal private benefit of firewood exceeds its marginal social benefit.

2- If a negative externality prevails in a competitive market for air travel, then:

a- More than the efficient amount of annual air travel will be consumed in equilibrium.
b- Less than the efficient amount of annual air travel will be consumed in equilibrium.
c- The marginal social cost of air travel will exceed its marginal social benefit in
equilibrium.
d- Both (a) and (c)
e- Both (b) and (c)

3- A positive externality results from the purchase of smoke detectors. If smoke detectors are sold
in a competitive market,

a- The marginal social benefit of smoke detectors is less than the marginal private benefit
received by any consumer.
b- The marginal social benefit will exceed the marginal private benefit received by any
consumer.
c- In equilibrium the marginal social cost of smoke detectors will equal the marginal social
benefit.
d- In equilibrium the marginal social benefit of smoke detectors is zero.
4- The marginal external cost associated with air pollution increases with the annual output of a
polluting industry. At the current competitive equilibrium level of output per year, the marginal
external cost is $10 per unit of output. To achieve efficiency,

a- A corrective tax of $10 per unit of output is required.

b- A corrective tax of more than $10 per unit of output is required.
c- A corrective tax of less than $10 per unit of output is required.
d- A corrective subsidy of $10 per unit of output is required.
e- A corrective subsidy of less than $10 per unit of output is required.

5- The marginal external cost associated with paper production is constant at $10 per ton per year.
The competitive market equilibrium for paper production is currently 10 million tons per year. A
corrective tax on paper production:

a- Will collect $100 million annually.

b- Will collect more than $100 million annually.
c- Will collect less than $100 million annually.
d- Will reduce annual damages to those other than buyers and sellers of paper to zero.
e- Both (a) and (d) .

6- The marginal external cost per unit of effluent discharged into a river by a perfectly competitive
chemical industry is currently estimated to be $50 per ton per year. Which of the following
statements is true?
a- Efficiency can be achieved with a $50 per ton annual effluent charge.
b- At the competitive equilibrium output, the marginal social benefit of discharging
effluent is $50.
c- Efficiency can be achieved by banning discharge of effluent.
d- At the efficient output, the marginal social benefit of discharging effluent will be zero.

7- Electric power is produced by an unregulated monopoly in a certain region. The monopolistic

electric power company’s production of electricity results in $10 per kilowatt hour of pollution
damage to parties other than the buyers of electricity in the region. To achieve efficiency,

a- A $10 per kilowatt hour corrective tax is required.

b- More than $10 per kilowatt hour corrective tax is required.
c- A $10 corrective subsidy is required.
d- Less than $10 per kilowatt hour corrective tax is required.
8- The competitive market equilibrium price of sanitation services in a small town with no
government-supplied sanitation services is $2 per trash pickup. There is a $1 marginal external
benefit associated with each trash pickup. The elasticity of supply of trash pickups is infinite in
the long run, implying a horizontal supply curve. To achieve the efficient output of sanitation
services,

a- A corrective subsidy must increase the price received by suppliers to $3 per pickup.
b- A corrective subsidy must decrease the price paid by consumers of sanitation services to
$1 per pickup.
c- A corrective tax of $1 per pickup is required.
d- A corrective subsidy must increase the price paid by buyers to $3 per pickup.

9- The current competitive market price of fish is $3 per pound. A chemical producer emits effluent
into a lake used by a commercial fishing firm. Each ton of chemical output causes a 20-pound
reduction in the annual catch of the fishing firm. Assuming that transactions costs are zero and
the chemical firm has the legal right to dump effluent into the lake,

a- The fishing firm would be willing to pay up to $60 per ton of chemicals per year to
induce the chemical firm to reduce chemical output.
b- The fishing firm would be willing to pay up to $3 per ton of chemicals per year to induce
the chemical firm to reduce chemical output.
c- The chemical firm would never consider the damage caused by its effluent.
d- Government intervention is required to achieve efficiency.

10- According to the Coase theorem, externalities can be internalized when transactions costs are
zero through:
a- Corrective taxes and subsidies.
b- Effluent fees.
c- Assigning property rights to resource use but outlawing their exchange.
d- Assignment of property rights to use resources and allowing free exchange of assigned
property rights.

11- Which of the following is true if a negative externality is associated with the sale of gasoline?

a- Third parties other than the buyers and sellers of gasoline receive benefits.
b- Third parties other than the buyers and sellers of gasoline bear costs.
c- The marginal social cost of gasoline exceeds its marginal private cost.
d- Both (b) and (c)
12- If a positive externality prevails in the market for smoke detectors, then when the market is in
equilibrium,
a- The marginal social benefit of smoke detectors exceeds the marginal social cost.
b- The marginal social cost of smoke detectors exceeds the marginal social benefit.
c- The marginal social cost of smoke detectors is equal to the marginal social benefit.
d- More than the efficient amount of smoke detectors is sold.

13- Regulations require that emissions of carbon monoxide be limited to 1,000 tons per 100 square
miles for all regions of the nation. If the marginal external cost of the emissions varies among
regions in the nation, then the regulations will:

a- Achieve the efficient amount of pollution abatement.

b- Achieve more than the efficient amount of pollution abatement.
c- Achieve less than the efficient amount of pollution abatement.
d- Be likely to achieve more than the efficient amount of abatement in some regions, but
less than the efficient amount in others.

14- If the marginal costs of reducing emissions varies among regions, then regulations requiring all
regions in a nation to reduce emissions by the same amount will achieve:

a- The efficient amount of pollution abatement.

b- More than the efficient amount of pollution abatement.
c- Less than the efficient amount of pollution abatement.
d- More than the efficient amount of pollution abatement in some regions, but less than
the efficient amount in other regions.

15- Which of the following is true about command-and-control regulation that allows businesses to
emit pollutants up to a certain point and bans emissions after that limit is reached?

a- They are equivalent to emissions charges.

b- They make firms pay the marginal cost of the damages done by their emissions, no
matter what the level.
c- They allow firms to emit some pollutants at zero charge.
d- They are likely to minimize the cost of achieving any given reduction in emissions.
Chapter 4
TRUE/FALSE QUESTIONS

1- Bread is an example of a good that is nonrival in consumption.

2- A pure public good is one for which it is easy to exclude consumers from benefits if they refuse
to pay.

3- The marginal social cost of producing another unit of a pure public good will always be positive.

4- To obtain a demand curve for a pure public good, the marginal benefit of each consumer must
be summed for each possible quantity produced per time period.

5- If the efficient amount of a pure public good is produced, each person consumes it up to the
point at which his or her marginal benefit equals the marginal social cost of the good.

6- In a Lindahl equilibrium, each consumer of a pure public good consumes the same quantity and
pays a tax share per unit of the good equal to his or her marginal benefit.

7- If the marginal social cost of a pure public good exceeds its marginal social benefit, additional
units of the good can still be financed by voluntary contributions.

8- The free-rider problem is less acute in small groups than it is in large groups.

9- A congestible public good is one for which the marginal cost of allowing an additional consumer
to enjoy the benefits of a given quantity is always zero.

10- Television programming is a good example of a price-excludable public good.

11- It is possible to price a pure public good and sell it by the unit.

12- The demand curve for a pure public good is obtained by adding the quantities demanded by
each individual consumer at each possible price.

13- A Lindahl equilibrium usually has each participant paying the same tax share per unit of a public
good even though their marginal benefit of that unit varies.

14- Internet service is an example of a price-excludable public good.

15- Clubs are a means of providing congestible public goods through markets.
MULTIPLE CHOICE QUESTIONS

1- A pure public good is:

a- One that can easily be sold by the unit.
b- One that is nonrival in consumption.
c- One whose benefits are not subject to exclusion.
d- Both (b) and (c)

2- The marginal cost of providing a certain quantity of a pure public good to an additional
consumer after it is provided to any one consumer is:
a- Zero.
b- Positive and increasing.
c- Positive and decreasing.
d- Positive and constant.

3- The nonrival property of pure public goods implies that the:

a- Benefits enjoyed by existing consumers decline as more consumers enjoy a given

quantity of the good.
b- Benefits enjoyed by existing consumers are unaffected as more consumers enjoy a given
quantity of the good.
c- Good cannot be priced.
d- Marginal cost of producing the good is zero.

4- The demand curve for a pure public good is:

a- A horizontal line.
b- Obtained by adding the quantities individual consumers would purchase at each
possible price.
c- Obtained by adding the marginal benefit obtained by each consumer at each possible
quantity.
d- The marginal cost curve for the pure public good.

5- The efficient output of a pure public good is achieved at the point at which:
a- the marginal benefit obtained by each consumer equals the marginal social cost of
producing the good.
b- the sum of the marginal benefits of all consumers equals the marginal social cost of
producing the good.
c- the marginal benefit of each consumer equals zero.
d- the marginal social cost of producing the good is zero.
e- both (c) and (d)
6- The monthly rental rate for a satellite dish antenna is $200. The maximum marginal benefit that
any resident of a condominium community will obtain per month from the antenna is $50.
There are 100 residents in the community, none of whom values the antenna at less than $25
per month. Assuming that the antenna is a pure public good for residents of the community,
a- each resident of the community will rent his own antenna.
b- it is inefficient for the community to rent an antenna.
c- it is efficient for the members of the community to rent an antenna for their common
use.
d- it is efficient for each resident to rent his own antenna.

7- In a Lindahl equilibrium,
a- each consumer purchases a pure public good up to the point at which his or her
marginal benefit equals the marginal social cost of the good.
b- each person pays a tax per unit of the pure public good equal to his or her marginal
benefit.
c- the sum of the marginal benefits of all consumers equals the marginal social cost of the
good.
d- both (a) and (c)
e- both (b) and (c)

8- The free-rider problem:

a- becomes more serious as the number of persons involved in voluntarily financing a pure
public good decreases.
b- becomes more serious as the number of persons involved in voluntarily financing a pure
public good increases.
c- is independent of the number of persons involved in a scheme to voluntarily finance a
pure public good.
d- does not prevent voluntary cooperation from efficiently providing pure public goods.

9- The marginal cost of making a given quantity of a congestible public good available to more
consumers is:
a- always zero.
b- positive and increasing.
c- positive and decreasing.
d- zero at first but eventually becomes positive and increasing.
10- Cable TV programming is an example of a:

a- Congestible public good.

b- Price-excludable public good.
c- Pure public good.
d- Pure private good.

11- A major distinction between pure public goods and pure private goods is that:

a- Pure private goods can easily be priced and sold in markets.

b- Pure public goods can easily be divided into units.
c- Pure public goods can only be collectively consumed.
d- Both (a) and (c)

12- The principle of nonexclusion for pure public goods means that the benefits of the good:

a- Are shared.
b- Can be priced.
c- Cannot be withheld from consumers even if they refuse to pay.
d- Are not reduced to any one consumer when a given quantity is consumed by another.

13- Which of the following is true in a Lindahl equilibrium for cooperative supply of a pure public
good?
a- The sum of the tax shares per unit paid by each consumer is equal to the marginal social
cost of the public good.
b- The sum of the tax shares per unit paid by each consumer is equal to the marginal social
benefit of the good.
c- The sum of the tax shares per unit paid by each consumer is maximized.
d- Both (a) and (b)

14- Which of the following is a good example of a congestible public good?

a- TV programming
b- A road
c- A loaf of bread
d- Homeland security

15- Education is:

a- A pure public good.
b- A pure private good.
c- A good that has characteristics of both public goods and private goods.
d- Not subject to the exclusion principle.
Chapter 5

True or false

1- A political equilibrium for a pure public good is generally independent of the collective choice
rule used.

2- A proposal is put forward to increase the number of police officers. You estimate that your
marginal benefit from police protection just equals your tax per police officer at the number of
officers that would constitute the police force if the proposal passes. You will therefore vote in
favor of the proposal.

3- The median voter is the one whose most-preferred political outcome is the median of the most-
preferred outcome of all those voting.

4- If all voters have single-peaked preferences, a political equilibrium will not be possible under
majority rule.

5- A person with multiple-peaked preferences is always made worse off as the quantity of a pure
public good is increased, or decreased, once he or she attains his or her most-preferred political
outcome.

6- A bureaucrat who seeks to maximize the annual size of his budget each year will propose annual
output levels corresponding to the amount for which MSB = MSC.

7- Political transactions costs are likely to be greater under unanimous consent than under
majority rule.

8- Unanimous consent is a collective choice rule that will protect the rights of minorities.

9- A person for whom the marginal benefit of a public good declines as more is made available has
single-peaked preferences.

10- Special interest groups are more likely to gain income through the political process if they are a
large percentage of the population.
MULTIPLE CHOICE QUESTIONS

1- A community currently hires 10 security guards per week to patrol their neighborhood. Each
security guard costs $300 per week. Assuming that the tax-sharing arrangement agreed to
results in each of 300 voters paying the same tax share, each voter pays a weekly tax bill of:

a- $1.
b- $3.
c- $10.
d- $30.

2- A small community currently taxes residents to provide monthly community concerts. Voter A
currently pays a tax per concert equal to $50 per month. This voter receives a Marginal benefit
of $75 at the current political equilibrium number of concerts per month.
Voter A:
a- Is the median voter.
b- Would be made better off if the number of monthly concerts were increased.
c- ould be made worse off if the number of monthly concerts were increased.
d- Has achieved his most-preferred political outcome for monthly concerts.

3- Currently eight security guards patrol a condominium community each week. The number of
guards has been determined by majority rule. Each voter pays a tax share of $50 per guard. If
Voter M is the median voter,

a- His marginal benefit from security guards is $50.

b- His marginal benefit exceeds that of any other voter.
c- The difference between his marginal benefit and $50 is at a maximum.
d- He would be made better off if more security guards were hired per week.

4- If all voters have single-peaked preferences, then under majority rule:

a- Cycling of political outcomes can occur.

b- A political equilibrium exists.
c- The political equilibrium is the median most-preferred outcome.
d- Both (b) and (c)
5- Implicit logrolling results when:

a- Any two issues are paired on a ballot.

b- Two voters succeed in pairing two issues on a ballot that can pass together but would
fail individually.
c- Voters agree to trade votes on an issue.
d- The pairing of two issues on a ballot allows the achievement of efficiency.

6- Voter A will normally vote in favor of one security guard per week because his marginal benefit
is $125 and his tax share is $100 per week. Voter A receives zero marginal benefit from one
concert a week and would vote against it. Voter B receives $125 marginal benefit from one
concert per week but no marginal benefit from one security guard. One concert per week also
will fail to gain a majority when put to the vote. Assuming that both Voter A and Voter B will pay
$100 per week in tax for each concert and each security guard,

a- They can both gain by engaging in logrolling on the two issues.

b- Pairing the issues on one ballot will result in both Voter A and Voter B voting in favor of
the combined issue.
c- Pairing the issues on one ballot will result in both Voter A and Voter B voting against the
combined issue.
d- Implicit logrolling will result in Voter A voting in favor of the combined issue, but in
Voter B voting against it.

7- The demand curve for a pure public good is:

a- Obtained by adding the quantity demanded at each possible price for all consumers.
b- Obtained by summing the marginal benefits of each consumer for each possible
quantity.
c- Always upward sloping.
d- Always a flat line.

8- A voter’s most-preferred political outcome will be that for which the:

a- Marginal benefit of a pure public good is equal to the voter’s tax share per unit.
b- Total benefit per unit of a pure public good is equal to the voter’s tax share per unit.
c- Difference between the marginal benefit of a pure public good and the voter’s tax share
per unit is maximized.
d- Marginal benefit of a pure public good is equal to zero, no matter what the voter’s tax
share per unit.
9- If all voters have single-peaked preferences for a pure public good, then the political equilibrium
under majority rule:

a- Cannot be defined.
b- Is the median outcome.
c- Is the median most-preferred outcome of all voter’s voting.
d- Will not change if tax shares change.

10- Which of the following collective choice rules is likely to have the lowest political externalities?

a- Two-thirds majority rule.

b- Simple majority rule.
c- Plurality rule.
d- Unanimous consent .