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Chapter 5 Public Spending and Public Choice 467
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?
5.4 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.
2) In the United States, which of the following is an example of a government inhibited good?
A) Museums B) Concerts
C) Cigarettes D) Sports stadiums
3) In the United States, which of the following is an example of a government sponsored good?
A) Cable T.V. B) Concerts C) Cigarettes D) Coffee
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
b
ucket problem.
5) Under present U.S. law, cocaine 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. law, which one of the following is a government inhibited good?
A) Housing B) Medical care C) Heroin 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.
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) A lighthouse B) National defense
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) national defense. 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)
b
lack market payments.
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) Salaries of government employees
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.
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 gasoline
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 and public housing.
D) political advertising.
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 a $14,000.00 per year grant by 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?
39) According to the textbook, what are the two key political functions of government in a market
economy?
40) How does a government sponsored good differ from a public good?
41) Is there any common characteristic shared by government inhibited goods and
government sponsored goods? Explain briefly.
5.5 Public Spending and Transfer Programs
1) As a share of total national income, government spending generally has
A)
b
een constant over the last fifty years.
B) increased over the last fifty years.
C) decreased over the last fifty years.
D) increased until ten years ago, and then decreased steadily.
2) Social Security and Medicare are clear examples of
A) capitalism.
B) market determined services.
C) market failures and externalities.
D) governmental intervention in the market.
3) According to your text, which of the following represents the largest source of tax receipts for
the Federal government?
A) sales taxes B) individual income taxes
C) corporate income taxes D) property taxes
4) Government payment of a per unit subsidy for medical care causes
A) the market supply curve to shift upward.
B) the market demand curve to shift downward.
C) a reduction in the price that providers of medical care receive for each unit of care
provided.
D) an increase in the quantity of medical care demanded above the quantity demanded in the
absence of the subsidy.
5) Recipients of Medicare tend to demand a greater quantity of low value, high cost services
because
A) the services are readily available.
B) recipients are coerced into demanding such services.
C) the government mandates that they demand such services.
D) the services are heavily subsidized.
6) The current Medicare system is designed so that it actually encourages
A) cost reductions. B) higher costs of medical services.
C) higher costs only for surgeries. D) lower drug costs for recipients.
7) Government payment of a per unit subsidy for medical care causes the out of pocket price that
consumers pay for care to be
A) less than the price that producers receive for providing care.
B) greater than the price that producers receive for providing care.
C) greater than the market clearing price without the subsidy.
D) equal to zero.
8) Compared with the market clearing price of a health care service covered by Medicare, the
Medicare program pays a ________ price to health care providers and charges a ________ price
to consumers.
A) lower, lower B) lower, higher C) higher, lower D) higher, higher
9) The goal of Medicare is to
A) help the poor and indigent pay their hospital bills.
B) prevent poverty in urban cities.
C) subsidize medical expenses for the elderly.
D) subsidize costs incurred by doctors.
10) Subsidies paid to the health care industry for Medicare patients are paid by
A) Congress. B) the Teamsters union.
C) current taxes. D) the Federal Reserve.
11) Public education is priced below market price largely as a result of
A) government subsidy programs.
B) under funded public education.
C) rising test scores by students.
D) taxpayers who contribute little to the funding of public education.
12) All of the following are major sources for financing public education EXCEPT
A) income taxes. B) sales taxes.
C) property taxes. D) government fees.
13) When state and local governments provide public schools with a per unit subsidy to provide
educational services, the price that the schools providing these services receive is
A) less than the price that consumers pay to receive educational services.
B) less than the amount of the per unit subsidy that the schools receive.
C) greater than the market clearing price without the subsidy.
D) equal to zero.
14) According to your text, one reason for flat or falling achievement scores even in the face of
substantially higher education subsidies may be that
A) the additional funds are being siphoned off by dishonest school board members.
B) some of the funds are going to social services rather than to enhance learning activities.
C) students are so unmotivated that no amount of spending will ever improve scores.
D) most parents do not support the schools or their children s educational activities.
15) One reason the Medicare system costs so much is
A) the amount of medical services is determined by the equilibrium of supply and demand.
B) the supply of medical services does not respond to price changes.
C) supply and demand analysis does not apply.
D)
b
eneficiaries are entitled to receive services for which the per unit cost exceeds their own
personal out of pocket payment.
16) Which of the following is a major reason why the Medicare program is in such financial trouble?
A) Workers are not paying enough into the program.
B) The government set reimbursement rates too high.
C) Because medical services are subsidized by the government, both consumption by the
elderly and the cost of services have increased.
D) There is a shortage of medical school applicants.
17) The major economic effect of Medicare subsidies is
A) that the number of physicians has decreased since compensation is low.
B) to increase the price of medical services and reduce the quantity demanded.
C) to increase the price of medical services and increase the quantity demanded.
D) to lower the price of medical services and reduce the quantity demanded.
18) Medicare subsidies will cause people to
A) perceive the price they pay per unit of medical services to be lower than the price received
by the provider.
B) perceive the price they pay per unit of medical services to be higher than the price received
by the provider.
C) perceive the price they pay per unit of medical services to be exactly equal to the price
received by the provider.
D) demand fewer services.
19) Medicare subsides will cause people to
A) consume less medical services than in the absence of the subsidies.
B) consume more medical services than in the absence of the subsidies.
C) consume the same amount medical services as they would if there were no subsidies.
D)
b
e sicker because of inferior care.
20) Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps.
The perceived price on the part of consumers is
A) Ps.
B) P0.
C) Pd.
D) undetermined without more information.
21) Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps.
The quantity demanded of medical services is
A) QM.
B) Q0.
C) Qd.
D) undetermined without more information.
22) In the above figure, the total dollar amount of the Medicare subsidies provided by the
government is equal to
A) the difference between Psand P0multiplied by QM.
B) the difference between Psand Pdmultiplied by QM.
C) the difference between P0and Pdmultiplied by Qd.
D) the difference between Psand Pdmultiplied by Q0.
23) Refer to the above figure. Medicare subsidies have increased the price of medical services to Ps.
Which of the following statements is true about the effect the Medicare subsidy has had on the
consumption of medical services?
A) The amount of medical services provided has decreased from Q0to Qdas a result of the
subsidy.
B) The amount of medical services provided has increased from Q0to QMas a result of the
subsidy.
C) The amount of medical services provided has increased from Qdto QMas a result of the
subsidy.
D) The amount of medical services provided has remained unchanged as a result of the
subsidy.
