40) Medicare is an example of a third-party payment for medical services that
A) causes providers to supply less of medical services than they would without the payment.
B) causes buyers to consume more of medical services than they would without the payment.
C) does not cause any change in the equilibrium position for medical services which existed
without the subsidy.
D) causes the price of medical services to rise for the consumer once the payment is provided.
41) The economic problem with Medicare financing is that
A) there is a built-in incentive to provide fewer services by doctors.
B) there is a built-in incentive to travel to Canada to receive medical services.
C) the cost of providing services is falling annually.
D) there is a built-in incentive to consume more services.
42) Which of the following is NOT a consequence of the introduction of the Medicare program?
A) an increased quantity of medical services demanded
B) an increased ability for the elderly to obtain medical services
C) an increased ability for the poor to obtain medical services
D) a reduced demand for medical services
43) The government’s policy of reducing payments for physicians’ services has generated a
relative
A) increase in the number of physicians in the program.
B) reduction in the number of physicians in the program.
C) reduction in the demand for medical services.
D) increase in the income of the physicians remaining in the program.
44) The total amount that the U.S. government spends to support a covered type of health care
service under the Medicare system equals
A) the per-unit subsidy provided to producers of that service times the quantity of the service
demanded by consumers at a below-equilibrium out-of-pocket price of the service.
B) the per-unit subsidy provided to producers of that service times the equilibrium quantity of
the service demanded at the market clearing price that would arise in the absence of Medicare.
C) the below-equilibrium, out-of-pocket price that consumers pay for the service times the
quantity of the service provided by producers at that out-of-pocket price.
D) the below-equilibrium, out-of-pocket price that consumers pay for the service times the
quantity of the service demanded by consumers at that out-of-pocket price.
45) The amount of government spending on education per public school student has ________
since 1960, and the achievement level of students has generally ________ since that time.
A) increased; increased
B) decreased; decreased
C) increased; decreased
D) decreased; increased
46) Medicare
A) subsidizes the care of older people, which gives them NO incentive to consume more medical
services.
B) subsidizes the care of older people, which gives them an incentive to consume more medical
services.
C) subsidizes the care of young people, which gives them an incentive to consume less medical
services.
D) subsidizes the care of middle aged people, which gives them an incentive to consume more
medical services.
47) Which of the following is NOT a transfer payment?
A) Medicare
B) Social Security retirement payments
C) Social Security disability payments
D) spending on national defense
48) Which of the following is heavily subsidized by state and local governments?
A) Medicare
B) Social Security
C) public education
D) food stamps
49) What happens in public schools when government funds subsidize education?
A) There is a shortage of schools.
B) The quality of education rises.
C) The cost of providing the education is less than what the student pays.
D) The cost of providing the education is more than what the students pays.
50) If public subsidies for education were eliminated, what would you expect as an outcome in
the market for educational services?
A) More students would enroll in school.
B) The price students pay to attend school would equal the value of an additional unit of
education consumed.
C) There would be no correlation between the price students pay and the cost of providing the
educational services.
D) The quality of education would deteriorate.
51) Medicare and Social Security are examples of
A) transfer payments.
B) public goods.
C) programs that do not respond to rational economic incentives.
D) a free market system.
52) What is one result of the Medicare subsidy?
A) The health care industry is more efficient than it otherwise would be.
B) Patients may elect to have some treatments that are of low value to them but that are costly to
provide.
C) The elderly population in the United States receives a lower quality of medical care than what
is provided for the elderly population in other countries.
D) The number of physicians in the United States has declined.
53) Public elementary and high school education in the United States is provided
A) as a free good.
B) as a subsidized good.
C) at the market clearing price.
D) in an amount less than the equilibrium quantity.
54) Public education in the United States is
A) subsidized mainly by state and local governments.
B) funded by the federal government only.
C) paid for mostly by the parents of students.
D) paid for through the Social Security program.
55) Which of the following is the largest component of federal spending today?
A) income security
B) Social Security
C) Medicare
D) national defense
56) Use the concept of supply and demand to explain why an increase in Medicare subsidies can
lead to an increase in health care spending by the government.
57) Briefly explain why government subsidies are a reason for the declining student performance
in public education.
5.5 Collective Decision Making: The Theory of Public Choice
1) One major characteristic of the price system is that
A) consumers together are the ones who ultimately decide what is produced.
B) individual sellers ultimately decide what is produced in the market.
C) competition among sellers is reduced.
D) all exchanges are regulated by the government.
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2) The theory of public choice deals primarily with
A) collective decision making.
B) individual decisions in a free market.
C) government actions that do not reflect the preferences of consumers.
D) how government regulations affect the decisions of individual consumers.
3) One key assumption of the theory of public choice is that individuals
A) are always in favor of the collective well-being of the public instead their own well-being.
B) are always concerned about the well-being of other individuals in society.
C) act differently between the public sector and the market sector.
D) act within the political process to maximize their individual well-being.
4) When comparing market and public sector decision making, which statement is NOT true?
A) Self-interest is the motivating force in each decision making arena.
B) In both decision making sectors, majority rule is how things are done.
C) In both decision making sectors, there are scarcity constraints.
D) Collective (political) outcomes and economic outcomes may differ.
5) All of the following are assumptions of both market and public-sector decision making
EXCEPT
A) Decisions are based on majority rule.
B) Decisions are motivated by individuals’ self-interest.
C) Opportunity costs exist in decisions.
D) Choices reflect incentives faced by decision makers.
6) Which of the following is FALSE about public-sector decision making?
A) Decisions are based on majority rule.
B) The price charged to consumers is often less than its full opportunity cost.
C) Decisions involve no opportunity cost.
D) Incentives play a role in decision making.
7) An important assumption in the theory of public choice is that
A) individuals will act within the political process to maximize their individual well-being.
B) individuals will act within the political process to maximize their collective well-being.
C) individuals will only operate outside the political process when their well-being is involved.
D) scarcity does not exist in the government sector.
8) In which of the following ways is the private market sector similar to the public sector in
terms of decision making?
A) Prices determine the demand for goods and services in each sector.
B) There is competition for scarce resource in both sectors.
C) Both sectors may use a type of “force” if necessary.
D) Votes by individual voters are basically equal in importance with dollars spent by individuals
on goods.
9) Which of the following characterizes the largest difference between the way decisions are
made in the private sector versus the public sector?
A) The incentive system for individuals to perform efficiently are vastly different.
B) The workers themselves are really quite different types of people.
C) In both sectors individuals will try to maximize their own individual gains over the gains of
others.
D) Costs and resources are vastly different in each sector.
10) Government goods are provided to the consumer at a zero price. This means that
A) the cost to society is zero.
B) the political system is run by proportional rule.
C) people are getting something for nothing.
D) the cost of the goods is the value of the resources used to produce the good.
11) Which of the following is TRUE about the political and market systems of voting?
A) The political voting system functions according to proportional rule, while the market voting
system functions according to majority rule.
B) The political voting system functions according to majority rule, while the market voting
system functions according to proportional rule.
C) The political voting system functions according to minority rule, while the market voting
system functions according to majority rule.
D) The political system and the market system are identical.
12) What is the assumption underlying public-choice theory?
A) Elected officials believe in cooperating with one another and they seek to avoid competition
among themselves.
B) The costs and benefits of being efficient are the same whether one is in the private sector or in
the public sector.
C) Individuals act within the political process to improve their own individual well-being.
D) Resources in the public sector are not scarce.
13) The theory of public choice suggests that
A) government agencies tend to be inefficient because the people running them do not
understand the concept of opportunity cost.
B) government agencies tend to be inefficient because they are subject to institutional
arrangements in which managers do not have an incentive to be efficient.
C) the goods provided by government, whether public or private goods, are not scarce.
D) you can lower your tax bill if you are careful not to consume too many government resources,
regardless of what your neighbors do.
14) A difference between the market and the public sector is that
A) scarcity exists only in the market sector.
B) government can use force, while the market does not.
C) we can only vote in the public sector.
D) the cost of private goods to society is zero.
15) The theory of public choice
A) is the theory of how government decides on what military hardware to purchase.
B) considers government decision-making efficient.
C) is the study of collective decision making.
D) is the study of how negative externalities can be reduced.
16) Scarcity of resources
A) affects both market and public sector decision making.
B) affects market, but not public sector decision making.
C) affects public sector, but not market decision making.
D) is really not an issue in such a wealthy nation as the United States.
17) The market and public sector are similar in that
A) there is competition among the participants in both sectors.
B) the resources used in both sectors are scarce.
C) the participants in both sectors react to incentives.
D) All of the above are true.
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18) A difference between the market and the public sector is that
A) competition exists only in the market sector.
B) resources are only scarce for the market sector.
C) decision making is by majority rule in the public sector but not in the market sector.
D) only the public sector produces private goods.
19) The incentive structure is a
A) system of rewards and punishments that individuals consider when making decisions.
B) system determined by the federal government that gives certain states more federal funds.
C) system of infrastructure in the United States that improves commerce.
D) system of checks and balances in the government.
20) If U.S. consumers increase their spending on electric cars by 100 percent, and 100 percent
more electric cars are produced, this is known as the
A) majority rule.
B) proportional rule.
C) government rule.
D) profit rule.
21) Briefly explain the similarities and differences of decision making by the market sector and
the public sector.
22) List and explain the four key assumptions in the theory of public choice.
23) What are the voting rules followed by the political system as opposed to the market system?