Question 1

Which of the following best describes a negative externality?

Accepted Answer

A cost imposed on people not directly involved in a market transaction.

Question 2

Suppose a factory emits pollution as a byproduct of its production. In the absence of government intervention, what is the likely market outcome?

Accepted Answer

The good will be overproduced relative to the social optimum.

Question 3

Which policy is most appropriate for correcting a negative externality such as air pollution?

Accepted Answer

Imposing a Pigouvian tax equal to the external cost.

Question 4

A positive externality exists when:

Accepted Answer

The social benefit of consumption exceeds the private benefit.

Question 5

Which of the following is an example of a public good?

Accepted Answer

National defense

Question 6

Why do public goods tend to be underprovided by the private market?

Accepted Answer

Because of the free-rider problem.

Question 7

Which of the following best characterizes common property resources?

Accepted Answer

Rivalrous and non-excludable

Question 8

The 'Tragedy of the Commons' refers to:

Accepted Answer

The overuse of common property resources due to lack of excludability.

Question 9

Suppose the government wants to increase the consumption of a good with positive externalities, such as vaccinations. Which policy would be most effective?

Accepted Answer

Providing a subsidy to consumers or producers of the good.

Question 10

A good is considered non-excludable if:

Accepted Answer

Suppliers cannot prevent users from consuming it for free.

Question 11

Which of the following statements about taxes is correct?

Accepted Answer

A progressive tax means higher-income individuals pay a higher share of their income in tax.

Question 12

The deadweight loss from a tax is also known as:

Accepted Answer

The excess burden of the tax

Question 13

If the demand for a good is highly elastic, imposing a tax on this good will:

Accepted Answer

Result in a larger deadweight loss compared to an inelastic good.

Question 14

Which of the following is an example of government correcting for incomplete information?

Accepted Answer

Enforcing product safety standards.

Question 15

According to the median voter theorem, the outcome of a majority vote will:

Accepted Answer

Likely represent the preferences of the voter in the political middle.

Question 16

Which of the following is a potential government failure?

Accepted Answer

Regulatory capture by special interest groups.

Question 17

Suppose the government imposes a tax on a good with perfectly inelastic supply. What will be the effect on deadweight loss?

Accepted Answer

There will be no deadweight loss.

Question 18

Which of the following best explains why patents and copyrights exist from a public economics perspective?

Accepted Answer

To convert a public good into a club good, allowing creators to charge for use and incentivize production.

Question 19

A city is considering three projects: a new hospital, a new school, and a new hockey rink. If each voter ranks the projects differently and no project receives a majority, this is an example of:

Accepted Answer

The paradox of voting.

Question 20

Which of the following is a trade-off associated with higher taxes and greater redistribution?

Accepted Answer

Greater redistribution reduces inequality but may discourage entrepreneurship and innovation.

Unit 12: Public Economics – Market Failures, Public Goods, and Public Choice

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