64) The free-rider problem plagues public goods because
A) public goods are not produced by profit-maximizing firms and hence can be produced only at
a loss to society.
B) once public goods are produced it is not possible to exclude anyone from consuming these
goods.
C) the government can refuse to serve a citizen.
D) the public doesn’t care about public goods.
65) A fundamental reason that governments provide public goods is that
A) those goods are subject to the free-rider problem.
B) negative externalities are part of the production process of those goods.
C) public goods are merit goods.
D) those goods are perfectly divisible.
66) A homeless family is given a government subsidy for an apartment in an affordable housing
project. The apartment
A) is not subject to the principle of rival consumption.
B) is not a public good.
C) has widespread benefits and concentrated costs.
D) is subject to the free-rider problem.
67) Private schools are able to exclude students from attending classes they offer unless students
have been accepted and paid tuition and fees. This suggests that education is
A) subject to the principle of rival consumption.
B) subject to the free-rider problem.
C) not subject to the exclusion principle.
D) a public good.
68) Which of the following functions of government gives property owners the incentive to use
their property efficiently?
A) making sure that courts are lenient on people who steal private property
B) the protection of property rights
C) the enforcement of antitrust legislation
D) the financing of public goods
69) Why does our government enforce antitrust legislation?
A) because monopolies are known to be unfair to their stockholders
B) because monopolies are known to be unfair to their employees
C) because the government wants to create competition in markets in the interests of promoting
efficiency
D) because the government wants to create competition in markets in the interests of promoting
an equal distribution of income
70) Which of the following is the best example of a public good?
A) inoculation against a contagious disease
B) a streetlight
C) garbage collection
D) Internet access
71) Why are public goods provided by the government, rather than by the private sector?
A) because they are large-scale projects that require the kind of financing only governments can
generate through the issuance of bonds
B) because it would be difficult for a private sector firm to make a profit providing a public
good, since consumers who benefit would not have to pay for it
C) because no one really benefits from public goods
D) because private sector firms do not have the foresight to plan for public goods
72) When does the free-rider problem arise?
A) when someone who benefits from a good does not have to contribute to paying for it
B) when a firm does not have to advertise, because its customers recommend the product to their
friends
C) when policymakers ignore opportunity costs in making decisions
D) when production of a good generates pollution
73) Which of the following would be considered an economic function of government?
A) providing a legal system
B) promoting competition
C) providing public goods
D) All of the above are correct.
74) The legal system provided by the government is necessary for the smooth working of
markets because
A) it keeps criminals off of the streets.
B) it defines and protects property rights.
C) it is set up in the U.S. constitution.
D) it ensures that producers maximize their profits.
75) The U.S. antitrust laws
A) aid monopolies in their quest to dominate the market for a good or service.
B) are outdated and rarely used anymore.
C) promote competition.
D) are administered by the Department of Commerce.
76) Public goods
A) are overproduced by unrestrained markets.
B) are simply private goods that the government provides.
C) cannot be consumed by more than one person without the degradation of the value of the
good.
D) can be consumed by more than one person without degradation of the value of the good.
77) Public goods face the
A) principle of rival consumption.
B) free-rider problem.
C) law of overproduction.
D) exclusion principle.
78) Which of the following could best be categorized as a public good?
A) an apartment in a public housing project
B) a pumpkin pie
C) public fireworks
D) a race track
79) The “principle of rival consumption” applies to which of the following?
A) national defense
B) the free-rider problem
C) the exclusion principle
D) a private good
80) The concept that a student is enjoying the benefits of police protection even though she does
pays taxes is called
A) the free-rider problem.
B) the negative externality principle.
C) the principle of rival consumption.
D) the principle of anti-trust.
81) Many nations are consistently accused of enjoying the benefits of membership in the United
Nations, yet they provide few or no funds to support the organization. This is an example of
A) the principle of rival consumption.
B) the free-rider problem.
C) the negative externality problem.
D) the property rights problem.
82) An important characteristic of private goods is
A) the nonexclusion principle.
B) the principle of rival consumption.
C) the principle of joint consumption.
D) the principle of conspicuous consumption.
83) The non-exclusion principle means
A) no one can be excluded from the benefits of a public good, even if the person does not pay for
it.
B) no one can be excluded from the benefits of a private good, even if only one person pays for
it.
C) no one who pays for a public good can be excluded from receiving the benefits of a public
good.
D) people who do not pay for a public good can be excluded from receiving its benefits.
84) Which of the following would be classified as a public good?
A) state lotteries
B) telephone service
C) Internet service subscription
D) police protection
85) A characteristic of a public good is that a public good is provided
A) to some businesses, but not to others.
B) only in some states.
C) to low income residents in some states.
D) to many individuals at no additional cost.
86) Receiving a voucher for an apartment in a public housing project would be an example of a
good that satisfies
A) the principle of rival consumption.
B) the definition of a public good.
C) the definition of a good with a positive externality.
D) the nonexclusion principle.
87) To an economist, a free rider is a person who
A) uses private goods without paying for them.
B) benefits from consuming public goods without paying for them.
C) consumes demerit goods.
D) uses the public transportation system without paying for it.
88) A characteristic of a public good is
A) rival consumption.
B) the exclusion principle.
C) the free-rider problem.
D) clear property rights.
89) Explain why economists consider it to be one of the economic functions of government to
provide a legal system.
90) How do public goods differ from private goods?
91) Explain why public goods can be classified as market failure? Explain what problem arises
when public goods are produced?
92) What is the purpose of antitrust legislation?
93) What is the free-rider problem, and how is it related to public goods?
94) Explain why ensuring economic stability is an economics function of government?
95) Suppose a valley periodically floods. A dam can be built in the river that would prevent the
flooding. Explain how flood control provided by building the dam arguably fits the
characteristics of a public good.
96) What are the key characteristics of a public good?
5.3 The Political Functions of Government
1) By definition, a government-sponsored good
A) is a good that is deemed socially desirable.
B) is a good that should be available only to upper-income groups.
C) is always provided at a zero price.
D) does not affect society’s general welfare.
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2) In the United States, which of the following is an example of a government-inhibited good?
A) museums
B) movies
C) cocaine
D) sports stadiums
3) In the United States, which of the following is an example of a government-sponsored good?
A) wireless networks
B) community college education
C) cigarettes
D) marijuana
4) A friend of yours receives a government voucher for an apartment in a public housing project.
This apartment represents
A) a government-sponsored good.
B) the free-rider problem.
C) a public good.
D) the drop-in-the-bucket problem.
5) Under present U.S. law, marijuana is an example of
A) a government-sponsored good.
B) a capital good.
C) a public good.
D) a government-inhibited good.
6) Under present U.S. federal law, which one of the following is a government-inhibited good?
A) housing
B) medical care
C) marijuana
D) education
7) A government-inhibited good is a good which
A) is not subject to the principle of mutual exclusivity.
B) the political process has deemed socially undesirable.
C) can be consumed by one individual without affecting the consumption of another individual.
D) the political process has deemed socially desirable.
8) A government-sponsored good is one that
A) everybody is willing to support with funding contributions.
B) is inherently valuable.
C) the political process has determined socially desirable.
D) everybody will receive concrete benefits from.
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9) A government-inhibited good is one that
A) cannot be individually consumed.
B) would be underproduced by the private market.
C) should be subsidized to correct the market failure and productive inefficiency.
D) has been deemed socially undesirable via the political process.
10) Which of the following is a government-inhibited good?
A) tobacco
B) red wine
C) public education
D) cocaine
11) A transfer payment is a payment
A) made by the government to its current workers.
B) associated with items exported to other nations.
C) for in-kind services provided to the government.
D) for which no services or goods are rendered.
12) Which of the following is a transfer payment?
I. Social Security
II. Unemployment benefits
A) I only
B) II only
C) Both I and II
D) Neither I nor II
13) An example of an in-kind transfer is
A) income tax.
B) Social Security.
C) low-cost public housing.
D) unemployment benefits.
14) Money payments made by governments to individuals for which no services or goods are
concurrently rendered are known as
A) transfer payments.
B) government-sponsored payments.
C) government-inhibited payments.
D) black market payments.
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15) Examples of transfer payments are
A) wages, profits, and rents.
B) Social Security checks and unemployment insurance payments.
C) salaries of educators, police, and firefighters.
D) federal government spending for national defense.
16) Which of the following does NOT involve transfers in kind?
A) public housing
B) food stamps
C) Medicare
D) income tax refund
17) A political function of government is to
A) encourage the consumption of government-sponsored goods.
B) provide public goods.
C) correct for externalities.
D) encourage the workings of the price system.
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18) Which of the following is a political function of government but is NOT a central economic
function?
A) determining who has a right to vote
B) determining government-sponsored and government-inhibited goods
C) providing a legal system to adjudicate property rights
D) redistributing income from some individuals to others
19) A government-sponsored good is one that
A) is desirable to no one but ruled desirable by the court system nonetheless.
B) everyone agrees is socially desirable.
C) freely competitive markets have determined is socially desirable.
D) the political process has determined is socially desirable.
20) If a nation’s government determines that consumption of cigarettes should be discouraged,
then this means that the government has judged cigarettes to be a(n)
A) government-sponsored good.
B) exclusive good.
C) government-inhibited good.
D) public good.
21) A government-inhibited good is one that
A) the political process has determined is socially undesirable.
B) the political process has determined is socially desirable.
C) freely competitive markets have determined is socially desirable.
D) we want to encourage the consumption of.
22) A payment that is made by the government for which no goods or services are given in return
is known as
A) a public good.
B) a transfer payment.
C) a negative externality.
D) a free rider.
23) If a government determines that the provision of services by museums should be encouraged,
then this means that the government has judged museum displays to be a(n)
A) government-sponsored good.
B) exclusive good.
C) government-inhibited good.
D) public good.
24) Establishing rules for voter registration is an example of a(n)
A) economic function of government.
B) political function of government.
C) public good.
D) transfer payment.
25) A government-inhibited good is often
A) produced by the government.
B) subsidized.
C) taxed.
D) advertised.
26) A government-sponsored good is often
A) produced by the government.
B) subsidized.
C) taxed.
D) advertised.
27) Which of the following is NOT an example of a transfer payment?
A) Social Security
B) unemployment benefits
C) welfare
D) interest payments on government bonds
28) Which of the following is NOT related to the government’s political function of income
redistribution?
A) providing money transfer payments
B) excise tax on cigarettes
C) Social Security
D) in-kind transfers
29) Which of the following types of goods would most likely be classified as a government-
inhibited good?
A) heroin
B) marijuana
C) tobacco
D) All of the above are correct.
30) Examples of transfers-in-kind include
A) tax rebates on both the federal and state levels.
B) taxes on alcohol and tobacco.
C) food stamps.
D) foreign aid.
31) What type of policy does the government adopt in dealing with government-inhibited goods?
A) It subsidizes their consumption.
B) It subsidizes their production.
C) It provides them as public goods.
D) It taxes, regulates, or prohibits their use.
32) A public museum is an example of a
A) government-sponsored good.
B) public good.
C) good which generates a positive externality.
D) good which generates a negative externality.
33) Which of the following checks issued by the government represents a transfer payment?
A) The federal government pays a defense contractor for development of a missile system.
B) The federal government pays a retiree her Social Security benefits.
C) The state of Oregon pays a construction firm for its work in repairing a state highway.
D) The state of Illinois pays groundskeepers at the state capitol building their weekly wages.
34) Government-sponsored goods are those goods
A) that society views desirable through the political process.
B) that companies give away as promotional prizes.
C) that have lower than average negative externality.
D) that only low-income individuals consume.
35) An example of a transfer payment is
A) the President’s salary.
B) unemployment insurance benefits.
C) a payment to a defense contractor.
D) court costs paid by the defendants in a law suit.
36) Which of the following is NOT an example of a transfer payment?
A) unemployment compensation
B) food stamps
C) government salaries
D) Social Security benefits
37) Fred receives $14,000 per year from the federal government because he is disabled. This is a
A) demerit good.
B) transfer payment.
C) non-rival good.
D) free rider problem.
38) How does the government carry out income redistribution?