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Chapter 5 Public Spending and Public Choice 447
9) The legal system in the United States tends
A) to support monopolies.
B) to actively discourage unionization.
C) to discourage the entry of new firms into industries.
D) to promote competition.
10) The U.S. legal system mainly engages in activities that
A) are dedicated to producing private goods.
B) focus on income redistribution.
C) involve defining and protecting property rights.
D) focus on producing public goods.
11) Federal antitrust laws in the United States are intended to
A) promote competition by prohibiting monopolies.
B) increase corporate earnings.
C) create new monopolies.
D) create only government owned monopolies.
12) To protect the competitive economic system by restricting the formation of monopolies, the
government has passed and enforced
A) regulatory laws. B) antitrust laws.
C) tort laws. D) zoning laws.
13) Federal antitrust laws in the United States are enforced
A) solely by the Federal Trade Commission.
B) solely by the Department of Justice.
C)
b
y the Department of Justice and by the Federal Trade Commission.
D)
b
y the Department of Commerce.
14) Which of the following does NOT describe the intended purpose of the antitrust laws of the
United States?
A) To promote competition within the economic system
B) To reduce the power of monopolies
C) To prohibit certain economic activities that promote trade
D) To restrict the formation of monopolies
15) U.S. antitrust laws view monopolies as undesirable because
A) monopolies restrain trade and promote inefficiencies.
B) monopolies create inferior products.
C) monopolies produce only capital goods.
D) monopolies produce only cheap, low quality goods.
16) The purpose of antitrust legislation is
A) to reduce unemployment.
B) to reduce the power of monopoly.
C) to increase the power of monopoly.
D) to maximize employment for a given price level.
17) A firm that has a great deal of control over the price of a good is said
A) to function in a black market. B) to create a tax incidence.
C) to have monopoly power. D) to be in an antitrust position.
18) Which one of the following is NOT a characteristic of public goods?
A) They are indivisible.
B) It is difficult to charge people on the basis of how much they use.
C) Public goods can be used by increasing numbers of people at no additional cost.
D) Public goods are subject to the principle of rival consumption.
19) When an Australian citizen enjoys military protection in Australia without contributing to the
cost of Australia s defense budget, then
A) this citizen is a free rider.
B) Australia is a free rider.
C) this citizen receives no benefits if Australia is attacked.
D) Australia s defense budget will run out of funds.
20) Which of the following is an example of the free rider problem?
A) A neighbor who refuses to help pay for a street light that is intended to help reduce crime
B) A student who refuses to buy a college catalog
C) A law enforcement officer who receives a uniform from the police department
D) A fast food employee who is provided food at work
21) Public goods are
A) any goods or services produced by the government.
B) provided to additional users at no additional cost.
C) provided only by the capitalistic system.
D) provided only by the communist system.
22) The principle feature of private goods is that
A) they cannot be rented or purchased.
B) consumption by one person reduces the quantity available to others.
C) no one can be excluded from consumption of the product.
D) externality problems associated with their production are always negative.
23) One characteristic of a public good is that it
A) is available for consumption by only a few individuals at any particular time.
B) always eliminates the free rider problem.
C) can be consumed simultaneously by many individuals.
D) can be easily subdivided into small units.
24) Which of the following would be best classified as a private good?
A) A missile defense system B) Police force
C) Radio frequency D) Clothing
25) Public goods are unlikely to be provided by the private sector because
A) the production of the good creates negative externalities.
B) no one can be excluded from the consumption of the good.
C) the consumption of the good creates negative externalities.
D) the exclusion principle does not apply to public goods.
26) The free rider problem is encountered when
A) someone benefits from the consumption of a public good without paying his or her full
share.
B) all individuals who consume a public good pay for it.
C) all goods consumed and produced are private goods.
D) all individuals are willing to pay for what they consume.
27) In the absence of government,
A) public goods are likely to be overprovided.
B) market failure is less likely to occur.
C) public goods are likely to be underprovided.
D) the free rider problem is more likely to occur.
28) The opportunity cost of providing a public good to an additional individual is
A) infinite. B) zero.
C) impossible to determine. D) high because of the exclusion principle.
29) Private goods are those goods
A) that violate the principle of rival consumption.
B) for which no public market exists.
C) that can only be consumed by one individual at a time.
D) to which the non exclusion principle applies.
30) Which of the following goods is NOT subject to the free rider problem?
A) National defense B) The local police force
C) Public fireworks D) A public transit system
31) The distinguishing characteristic of private goods is that
A) the principle of rival consumption does not apply to them.
B) their use is exclusive to the people who purchase them.
C) they can be sold but not rented.
D) they can be sold or rented, but not borrowed.
32) A fundamental aspect of public goods is that they
A) are just like private goods EXCEPT that everybody wants to consume the same amount.
B) have positive externalities.
C) are characterized by the principle of rival consumption.
D) can be consumed jointly by many people simultaneously.
33) Which of the following is an example of a public good?
A) Amtrak rail transport services B) Services of the U.S. Post Office
C) The provision of medical care D) The provision of national defense
34) Public goods are characterized by the free rider problem because
A) no one can be excluded from the benefits of public goods once they are produced.
B) public goods are usually things that people really do not want to consume.
C) public goods are characterized by the principle of rival consumption.
D) public goods can easily be subdivided into small units.
35) Which of the following types of goods is subject to the free rider problem?
A) A private good
B) A public good
C) A product that creates a positive externality
D) A product that creates a negative externality
36) Which of the following is best characterized as a public good?
A) A public library B) A church
C) Primary education D) Police protection
37) Public goods are basically
A) rival in consumption. B) nonrival in consumption.
C) depletable in consumption. D) nondepletable in consumption.
38) Which event was most important in promoting the belief that the U.S. government should work
to ensure economy wide stability?
A) World War II B) The Civil Rights Movement
C) The California Gold Rush D) The Great Depression
39) What are the three goals of the Employment Act of 1946?
A) Keep the peace, improve public education, and protect the environment
B) Improve the education system, provide more job training, and expand the number of
government jobs
C) Full employment, price stability, and economic growth
D) Full employment, better schools, and lower income taxes
40) The Employment Act of 1946 reflects which one of the following functions of government?
A) Providing a legal system B) Improving economy wide stabilization
C) Correcting externalities D) Providing public goods
41) Which law specifically mandated the federal government s responsibility for economy wide
stability?
A) The Employment Act of 1946 B) The Sherman Act of 1890
C) The Great Depression Act of 1930 D) The Miller Act of 1960
42) The economic functions of government include
A) determining prices. B) setting wages in the public sector.
C) protecting property rights. D) welfare.
43) All of the following are economic functions of the government EXCEPT
A) providing a legal system.
B) determining the wage rate for most jobs.
C) promoting competition in the market.
D) providing public goods.
44) The economic functions of the government deal with
A) discouraging smoking in youths. B) making sure supply equal demand.
C) promoting economic efficiency. D) excess demand.
45) Providing public goods is a(n)
A) economic function of government.
B) political function of government.
C) economic and political function of government.
D) price system function.
46) The political functions of government differ from the economic functions of government in that
A) the political functions relate to income distribution while the economic functions relate to
the way exchange is carried out.
B) the political functions are performed at the federal government while the economic
functions are at the state and local government levels.
C) the political functions involve elections and the court systems while the economic
functions involve taxation and transfers.
D) the President deals with the economic functions while Congress deals with the political
functions.
47) The difference between the economic and political functions of government is that
A) the economic function is concerned with the Federal Taxation system while the political
function is not.
B) the economic function is concerned with correcting for market failures while the political
function is not.
C) the economic function is concerned with the reallocation of income while the political
function is not.
D) the economic function encourages merit goods while the political function discourages
demerit goods.
48) The provision of a legal system is an important economic function of the government because
A) lawyers and judges tend to be high income people.
B) people need to feel safe when they go to work.
C) the legal system affects how exchange takes place through its enforcement of contracts.
D) the legal system affects the distribution of income through its awarding of damages in
accident claims.
49) Which of the following legal subjects is most concerned with the economic function of the legal
system?
A) Criminal law B) Public goods
C) Antitrust legislation D) Civil rights
50) The government tries to protect the competitive economic system by passing and enforcing
A) price controls. B) tariff legislation.
C) antitrust laws. D)
b
uilding codes and zoning laws.
51) A government agency charged with enforcing antitrust laws is
A) the Federal Reserve Board. B) the National Labor Relations Board.
C) the Council of Economic Advisors. D) the Federal Trade Commission.
52) Private goods are goods
A) that carry a price.
B) for which price is greater than zero.
C) for which the more one person has the less is available for someone else.
D) that are produced by the government.
53) All of the following are characteristics of public goods EXCEPT
A) Public goods can be used by more people at no additional cost.
B) The good can be consumed by everyone at the same time without reducing what is
available for anyone else.
C) The exclusion principle.
D) The goods are perfectly divisible.
54) Public goods are desired because
A) people want and value them but the private sector will not make them available.
B) we want the government to spend our tax dollars.
C) they came in small units.
D) they make supply equal to demand for private goods.
55) An example of a public good is
A) software produced by Microsoft. B) housing subsidies.
C) the car I own. D) the fire department.
56) The distinguishing characteristic of a public good is
A) noncompetitive production. B) durability.
C) exclusivity. D) nonrival consumption.
57) Which of the following statements is true about the difference between a public and private
good?
A) Both public and private goods are owned by individuals but public goods can be shared
while private goods cannot be shared.
B) The government produces private goods while corporations produce public goods.
C) Consumption of a private good by one person reduces the amount available for others
while the consumption of a public good does not reduce the amount available for others.
D) Resources are used to produce private goods but are not used to produce public goods.
58) The difference between a private good and a public good is that
A) private goods are government sponsored goods while public goods are
government inhibited goods.
B) externalities are always created in the production process but not in the production of
public goods.
C) private goods make us happy while public goods do not.
D) the exclusion principle applies to a private good but not to a public good.
59) Which of the following is an example of a public good?
A) Flood control B) Post Office C) Health care D) Welfare
60) A lighthouse that serves a dangerous coastal area is built. The lighthouse cost $500,000 to build
and serves 500 ships a month. If the shipping in the area increases so that 750 ships pass by a
month, the increase in additional costs of providing the light to these new ships is
A) $500,000. B) $250,000. C) $250. D) $0.
61) A free rider is someone who
A) hops on the bus for free.
B) enjoys the flowers I have planted and does not compensate me for them.
C) creates a negative externality.
D)
b
uys a ticket for a movie.
62) The free rider problem is
A) the use of private goods in one state by residents of another state.
B) the incentive that people have to avoid paying for a public good.
C) the incentive that people have once they are receiving welfare to keep getting welfare.
D) that people cannot be forced to accept public goods.
63) In the spring, I enjoy the fragrance coming from my neighbors flowers. The fragrance is is an
example of
A) a negative externality. B) a private good.
C) the need for antitrust legislation. D) a free rider.
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
A) the free rider problem.
B) negative externalities are part of the production process.
C) public goods are merit goods.
D) they are perfectly divisible.
66) Ms. Smith is given a voucher for an apartment in a public 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 exclusion principle.
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)
b
ecause monopolies are known to be unfair to their stockholders
B)
b
ecause monopolies are known to be unfair to their employees
C)
b
ecause the government wants to create competition in markets in the interests of
promoting efficiency
D)
b
ecause 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)
b
ecause they are large scale projects that require the kind of financing only governments
can generate through the issuance of bonds
B)
b
ecause 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)
b
ecause no one really benefits from public goods
D)
b
ecause 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 Mr. Jones is going to enjoy the benefits of police protection even though he no
longer 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) cable TV programming D) national defense
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)
b
enefits 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?
