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Multiple Choice Quiz
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1
Market failure occurs when:
A)Society chooses the optimal mix of output
B)When market prices signal what to produce
C)When a society does not vote on what should be produced
D)The market mechanism does not produce the optimal outcome
2
Which of the following is not an example of a market failure?
A)Monopoly
B)Pollution
C)The high price of luxury goods
D)Unequal distribution of income
3
A public good is:
A)A good produced with taxes
B)A good whose consumption is not diminished by the consumption of others
C)A good whose consumption is diminished by the consumption of others
D)A good whose consumption is determined by demand
4
Which of the following would meet the economists' definition of a public good?
A)An elementary school
B)A hospital
C)A university
D)National defense
5
The communal nature of public goods creates:
A)A free rider problem
B)An under-consumption of the good
C)An over-consumption of the good
D)An over-production of the good
6
An externality occurs when:
A)An unintended benefit flows to a third party
B)An unintended cost is borne by a third party
C)Costs or benefits are borne by third parties
D)All of the above
7
An externality is an example of a market failure because:
A)A good can be consumed by many people without having to pay for it
B)The market is under-producing a good
C)The price of the product does not reflect all costs
D)The price does not fluctuate with supply and demand
8
The social demand for a product differs from market demand by:
A)The difference in price
B)The level of public goods
C)The optimal mix of output
D)The market demand is the social demand minus the externalities
9
If a good or service has an external benefit, a market:
A)Over-produces this good
B)All buyers in the market benefit
C)The good will be under-produced
D)The good does not produce an externality
10
Market power is a market failure because:
A)The product will be over-produced
B)Sellers will be able to reduce supply and raise price
C)Producers will gain profits
D)A natural monopoly will not exist
11
Governments attempt to redress an unequal distribution of income by:
A)Producing public goods like universities
B)Income transfers
C)Progressive income taxes
D)All of the above
12
Which historic event sharply increased the size of government spending?
A)The Korean war
B)The great depression
C)World War II
D)The Vietnam war
13
In a progressive tax system:
A)Tax rates rise as incomes fall
B)Tax rates rise as incomes rise
C)Allows a higher income tax earner to pay the same percent as a lower income earner
D)Is used by state governments with their sales taxes
14
Which of the following is a progressive tax?
A)Social security taxes
B)Sales taxes
C)Federal income taxes
D)Payroll taxes
15
Because state governments are running budget deficits, they are:
A)Lowering taxes
B)Using state sponsored gambling to raise revenues
C)Using decreased sales taxes to spur spending
D)Allowing corporations to be exempt from taxes





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