ch 14 public goods and tax policy

If a good can be consumed by one person without reducing its availability to others, then it is a ________ good.
• A) nonexcludable
• B) pure public
• C) common
• D) nonrival

D

If it is difficult, or costly, to prevent people who do not pay for a good from consuming the good, then the good is a ________ good.
• A) nonexcludable
• B) pure public
• C) private
• D) nonrival

A

Which of the following items is an example of a good that is nonrival but excludable?
• A) Pay-per-view movies
• B) Corn
• C) National defense
• D) Broadcast television

A

National defense is an example of a good that is:
• A) neither nonrival nor nonexcludable.
• B) largely nonrival and nonexcludable.
• C) only nonexcludable.
• D) only nonrival

B

Aaron's neighbor Cliff keeps his front yard well- manicured and plants beautiful flowers which Aaron enjoys. If local law prevents Cliff from fencing his yard, the beauty of Cliff's front yard is:
• A) nonrival.
• B) a private good.
• C) nonexcludable.
• D) both nonrival and nonexcludable.

D

Your state department of transportation is considering installing toll booths with gates on a quiet section of highway. If this is done, a good that is currently a:
• A) public good will become a private good.
• B) nonrival good will become a rival good.
• C) nonexcludable good will become an excludable good.
• D) rival good will become an excludable good.

C

Which of the following is the best example of a pure public good?
• A) Cable television
• B) A national park
• C) National defense
• D) Education

C

When someone buys a movie on DVD, the DVD is a ________ good.
• A) public
• B) private
• C) collective
• D) commons

B

A highway without any tolls between 12am and 5am when there is very little traffic is an example of a ________ good.
• A) collective
• B) public
• C) private
• D) commons

B

A patch of edible mushrooms growing wild in a national forest is a ________ good.
• A) public
• B) private
• C) pure public
• D) commons

D

Pure public goods:
• A) should always be provided by government.
• B) should always be provided by private firms.
• C) are frequently provided by the government, and are sometimes provided by private firms.
• D) are, by definition, goods and services provided by the government.

C

Broadcast television is an example of:
• A) a collective good provided by the
government.
• B) a private good provided by private firms.
• C) a private good provided by the government.
• D) a public good provided by private firms.

D

Curly pays $12,000 in taxes and earns $150,000. Moe pays $7,000 in taxes. If the tax system is proportional, then Moe's income is:
• A) $56,000.
• B) $125,000.
• C) $87,500.
• D) $98,000.

C

Spike pays $14,000 in taxes and earns $100,000. Ace earns $120,000. If the tax system is progressive, Ace will pay ________ in taxes.
• A) $15,500.
• B) more than $16,800.
• C) more than $15,500 but less than $16,800.
• D) $16,800.

B

If the government needs to raise revenue to pay for a public good, the ideal tax structure would tax
• A) all citizens by the same amount.
• B) all citizens in proportion to their willingness to pay
for the public good.
• C) all citizens by the same proportion of their income.
• D) only citizens who state that they will use the public
good.

B

Under a head tax, the amount of tax paid is:
• A) the same for all taxpayers.
• B) proportional to each taxpayer's income.
• C) a linearly increasing function of the taxpayer's income.
• D) the same for all taxpayers who use the public good.

A

A proportional tax results in:
• A) a larger percentage of income going to taxes as
income rises.
• B) a smaller percentage of income going to taxes as income rises.
• C) the same dollar amount going to taxes for all taxpayers.
• D) the same percentage of income going to taxes for all taxpayers.

D

The current U.S. income tax system requires taxpayers to pay a higher marginal tax rate on higher levels of taxable income. Suppose that the tax rate is 10 percent on the first $15,000 of taxable income, 15 percent on the next $45,000 of taxable income, 30 percent on the next $60,000 of taxable income, and 35 percent on taxable income above $120,000. This income tax system is:
• A) progressive.
• B) regressive.
• C) proportional.
• D) progressive when income is low, then regressive

A

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. The total social benefit of the swimming pool is:
• A) $1,490.
• B) $1,000.
• C) $1,590.
• D) $1,120.

A

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. If Fran proposes that the city build the pool and finance it with a $200 tax on each resident, then ________ residents will vote in favor of the proposal and ________ will vote against, so the proposal will ________.

A) 5; 1; pass
• B) 4; 1; pass
• C) 2; 3; fail
• D) 3; 2; fail

D

The demand curve for a public good is constructed by:
• A) summing voters' desired quantity of the public good at
each price.
• B) surveying voters on how much of a particular public good they would use at each price.
• C) summing voters' reservation prices at each quantity.
• D) dividing the total cost of providing the public good by
the number of potential users.

C

Suppose Scott's demand for a public good is P = 7 - 0.3Q and Mike's demand is P = 10 - 1.5Q. The equation for the total demand for the public good is:
• A)P=20-3.0Q.
• B)P=17-1.8Q.
• C)P=3-1.2Q.
• D)P=14-0.6Q.

B

To derive the market demand curve for a private good, one sums the ________. For a public good, one sums the ________.
• A) individual quantities at various prices; individual quantities at various prices
• B) individual prices at various quantities; individual quantities at various prices
• C) individual quantities at various prices; individual prices at various quantities
• D) individual prices at various quantities; individual prices at various
quantities

C

Which of the following statements about the provision of public goods is true?
• A) The government should always provide public goods.
• B) The optimal level of a public good occurs when all
taxpayers receive some of the good.
• C) If the marginal benefit of a public good exceeds its marginal cost, more should be provided.
• D) The total benefit of a public good should equal its total
cost.

C

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a private good, then at a price of $4, market demand is ________ units.
• A)60
• B)30
• C)10
• D)5

A

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, then the marginal benefit of the 30th unit is:
• A)$30
• B)$9
• C)$4
• D)$2

B

Suppose the market consists of 3 individuals: Citizen A, Citizen B and Citizen C. If the good shown on the graphs is a public good, and the marginal cost of providing each unit is constant and equal to $5, then what is the optimal quantity of the public good?
• A) 50 units
• B) 40 units
• C) 30 units
• D) 20 units

B

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. The public's willingness to pay for the 2nd acre of parkland is ________.
• A)$6.
• B)$8.
• C) $14.
• D) $26.

D

There are 20 residents in the village of Towneburg. The size of the village's annual fireworks display depends upon the number of shells that are fired off. Each resident's demand for fireworks is shown below. The total cost of the fireworks display is $1,000 plus $10 per shell. What is the horizontal intercept of the village's demand curve for fireworks?
• A)25
• B)50
• C)100
• D)500

A

Lane and Riley are the only two residents in a neighborhood, and they share the same driveway. They would like to have the driveway paved. The value of the paved driveway is $1,500 to Lane and $900 to Riley. Regardless of who pays for the paving both people will benefit from it. What is the most a contractor can charge to pave the driveway and still be assured of being hired by at least one of them?
• A) $600
• B) $900
• C) $1,500
• D) $2,400

C

One disadvantage of using the government to provide pure public goods is that everyone receives ________ of the public good and has ________ for the public good.
• A) a different amount; a different reservation price
• B) a different amount; the same reservation price
• C) the same amount; a different reservation price
• D) the same amount; the same reservation price

C

The problems of externalities and poorly formed property rights are:
• A) minor in modern economies.
• B) among several rationales for the existence of
government.
• C) better solved by private rather than government action.
• D) the only two legitimate reasons for creating
government.

B

The presence of an unregulated negative externality means that the unregulated market equilibrium quantity is:
• A) efficient.
• B) smaller than is optimal.
• C) larger than is optimal.
• D) greater than demand.

C

The government subsidizes education because:
• A) it is a pure public good.
• B) private firms will not provide education.
• C) the government can provide a better education than can private firms.
• D) education is thought to have positive
externalities.

D

When a negative externality is present in a market, the government should:
• A) always intervene.
• B) intervene it if the public supports doing so.
• C) never intervene.
• D) intervene if the benefit of doing so exceeds the cost.

D

The most appropriate level of government to provide public goods is:
• A) local.
• B) state.
• C) dependent on the specific public good in question.
• D) federal.

C

If one state is suffering from acid rain as a result of sulfur dioxide emissions from the industries in a neighboring state, then:
• A) the individual states can easily reach a solution to the problem.
• B) the problem is best addressed through federal regulation.
• C) state courts can provide adequate remedies.
• D) the acid rain ceases to be an externality.

B

It will be difficult to find a solution to the problems caused by greenhouse gas emissions because:
• A) the scientific evidence on the negative effects of greenhouse gas emissions is weak.
• B) voters are not aware of the problems caused by greenhouse gas emissions.
• C) an international political organization would be necessary to enforce a solution.
• D) the technology to reduce greenhouse gas emissions is undeveloped.

C

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. The government is spending the socially optimal amount on:
• A) public good 1.
• B) public good 2.
• C) public good 3.
• D) public good 1 and public good

A

The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Total economic surplus could be increased by reallocating total spending away from
• A) public good 2 toward public good 3.
• B) public good 3 toward public good 1.
• C) public good 2 toward public good 1.
• D) public good 1 toward public good 3.

A

If low-income households spend a larger share of their income on food than do high-income households, then a tax on food is:
• A) a progressive tax.
• B) a regressive tax.
• C) a proportional tax.
• D) a way to redistribute from the wealthy to the
poor.

B

If the government taxes a good that generates a negative externality, then the government:
• A) will generate tax revenue, but lower economic surplus.
• B) can increase total economic surplus, but tax revenue will
fall.
• C) can increase total economic surplus and generate tax revenue.
• D) will neither increase total economic surplus nor generate tax revenue.

C