public finance test 1

1.

1 point

What is the substitution effect?

Consumers will always be willing to substitute one good for another

Pupils will always behave better for their regular teacher than for a subsitute

When a consumer's income rises, they will substitute superior goods for inferior goods

The rise in price of a good will cause a consumer to buy less of the higher-priced good and more of a lower-priced good

2.

1 point

What are public goods?

Goods provided to the citizens of a country, distributed by the government

Goods provided to all people residing in a country, distributed by the government

None of these choices

A product that one individual can consume without reducing its availability to another individual and from which no one is excluded

3.

1 point

What is the marginal rate of subsitution

The difference in goods purchased according to income

The rate at which one good is traded for another based on price variations

A consumer's ability to buy one bundle of goods instead of another, determined by the consumer's budget constraint

The rate at which a consumer is willing to trade one good for another

4.

1 point

Define the utilitarian philosophy

The greatest good for the greatest number

The value of each additional unit of a good

Every person has inherent worth and dignity

The greatest good for the most disadvantaged in society

5.

1 point

Define Monopoly

1 seller, many buyers

too many barriers to marketplace

1 buyer, many sellers

unregulated marketplace

6.

1 point

Give an example of a price ceiling

Rent Control

Cap and Trade

Agricultural Subsidies

Allowance

7.

1 point

The following states the income effect

Consumers' choices are constrained by their budget

A rise in the price of any good will make a consumer effectively poorer, causing the consumer to choose less of all goods

When incomes rise, consumption also rises

None of these choices

8.

1 point

The Kaldor Hicks Criterion states:

Policy should be enacted if those who will gain from the policy can compensate the other parties involved and still gain

Policies should only be enacted if they involve minimal economic risk

Policy should be enacted if it benefits the greatest number with the greatest good

Policies should be enacted to benefit the most vulnerable in society

9.

1 point

An indifference curve shows:

scarcity

preferences

substitution effect

marginal cost

10.

1 point

Give an example of a Price Floor

Agricultural Subsidy

Cap and Trade

Rent Control

Allowance

11.

1 point

What is profit?

The amount a customer pays above market value

The difference between revenues and costs

The total amount a producer receives for its goods

The costs of raw materials plus wages paid to laborers

12.

1 point

With inelastic demand:

There will be one unit of change in price and one unit change in quantity demanded

None of these

There will be a big change in price with a small change in the quantity demanded

There will be a small change in price with a big change in the quantity demanded

13.

1 point

The Coase Theorem states:

If markets are at equilibrium, social equity is maximized

Competitive markets produce Pareto efficient outcomes

To internalize externalities, one party must have property rights and the transaction costs must be low

Policy should provide the greatest good for the greatest number

14.

1 point

Define Equilibrium

The social marginal cost and the private marginal cost are the same

The price of a good remains constant

The quantity demanded and the quantity supplied are equal

There is no change in the quantity demanded

15.

1 point

Define opportunity cost:

None of these choices

Cost that has already been incurred

The value of the best alternative foregone

The cost to society for the inefficient allocation of resources

16.

1 point

Good B is an inferior good. As income increases, demand for Good B:

Decreases

Stays the same

Not enough information to answer

Increases

17.

1 point

_________ is an example of a positive externality

Tax Returns

Your Neighbor's Beautiful Landscaping

Air Pollution

The Internet

18.

1 point

What is the free rider problem?

Banks have become too big to fail and know they will receive government bailouts

An individual consumes more of a common resource than they pay for

Millennials' sense of entitlement is stifling the economy

An individual will not pay off loans when interest is low

19.

1 point

What is equity?

The equal distribution of resources in society

The fair distribution of resources in society

The value of a good being exactly equal to its price

The effort put forth by an individual for no cost

20.

1 point

What is marginal utility?

The additional utility gained by consuming an additional unit of a good

An economic model for predicting a consumer's utility

The rate at which a consumer is willing to trade one good for another

The value of a consumer's preferences

21.

1 point

___________ is an example of a negative externality

A well-maintained common space

Sales Tax

Second hand smoke

Rising Prices

22.

1 point

Solve for the Quantity Demanded and Quantity Supplied at Equilibrium:

Qs = 10-2P
Qd = 1+P

Qs = 8, Qd = 3

Qs = 7, Qd = 4

Qs = 1, Qd = 1

Qs = 4, Qd = 4

23.

1 point

Define sunk-cost

A cost borne by all of society

A cost above a consumer's budget constraint

The best alternative foregone

A previously incurred and irreversible cost

24.

1 point

Define moral hazard

An individual chooses to engage in a behavior even though it is against the individual's ethical belief

An individual engages in risky behavior knowing that it is protected from risk and another party will incur the costs

A situation that poses economic risk to religious body

All of these choices are correct

25.

1 point

With elastic demand:

There will be a small change in price with a big change in the quantity demanded

There will be a big change in price with a little change in the quantity demanded

There will be one unit of change in price and one unit change in quantity demanded

None of these

26.

1 point

What are the causes of market failure?

public goods, monopoly, moral hazard, income gap

monopoly, asymmetric information, externalities, free-rider problem

stock market crash, opportunity cost, sunk cost, public goods

monopoly, scrabble, settlers of catan, bananagrams

27.

1 point

The Law of Demand states that:

If income increases, then demand will increase

As price increases, the quantity demanded decreases

As price decreases, the quantity demanded decreases

If Beyonce has it, everybody wants it

28.

1 point

A tax on a supplier shifts:

The demand curve out

The supply curve up and to the left

The supply curve down and to the right

The demand curve in

29.

1 point

A subsidy shifts:

The demand curve in

The supply curve down and to the right

The demand curve out

The supply curve up and to the left

30.

1 point

What are externalities?

Effects firms have on global markets

Taxes and Subsidies

Unintended consequences

Shocks to the market

31.

1 point

State the Law of Supply

As price increases, the quantity supplied increases

As price decreases, the quantity supplied increases

The one item an individual needs will always be in short supply

An individual can only consume a good if a supplier produces it

32.

1 point

Good A is a normal good. As income increases, the demand for Good A:

Stays the same

Not enough information to answer

Decreases

Increases