Public Finance - Multiple Choice Q & A
1. Positive economics
(a) does not depend
on market interactions.
(b) only looks at the best parts of the
economy.
(c) examines how the
economy actually works (as opposed to how it should work).
(d) is very subjective.
2. The Coase theorem has problems because
(a) generally, bargaining costs are not zero.
(b) individuals are not concerned with others.
(c) markets always
exist.
(d) all of the above.
3. The marginal rate of substitution is
(a) the slope of the
Pareto curve.
(b) the slope of the
contract curve.
(c) the slope of the utility possibilities
curve.
(d) the slope of the indifference curve.
4. The slope of the production
possibilities curve is the
(a) marginal rate of
substitution.
(b) contract curve.
(c) marginal rate of transformation.
(d) offer curve.
(e) Engel curve.
5. The First Fundamental Theorem of Welfare
Economics
(a) producers and
consumers to be price takers.
(b) that there be an
efficient market for every commodity.
(c) that the economy
operate at some point on the utility possibility curve.
(d) all of the above.
6. The economic incidence of a unit
tax is
(a) generally borne by the buyers.
(b) generally borne
by sellers.
(c) generally borne
by the government.
(d) independent of the statutory incidence for the tax.
(e) none of the
above
7. Market failure can occur when
(a) monopoly power exists in the market.
(b) markets are missing.
(c) consumers can
influence prices.
(d) moral hazard and adverse selection exist
(e) all of the above.
8. A public good is
(a) a good that the public must pay for.
(b) nonrival in consumption.
(c) more costly than
a private good.
(d) paid for by the
government.
9. Movement from an inefficient allocation to
an efficient allocation in the Edgeworth Box will
(a) increase the
utility of all individuals.
(b) increase the
utility of at least one individual, but may decrease the level of utility of
another person.
(c) increase the utility of one individual,
but cannot decrease the utility of any individual.
(d) decrease the
utility of all individuals.
10. Points on the utility
possibility frontier are
(a) inefficient.
(b) points of
incomplete preferences.
(c) not producible.
(d) Pareto
efficient.
11. The economic theory of optimal
health care provision says that
(a) It is socially
optimal for free medical treatment to be provided to everyone
(b) Everyone should
pay their own medical expenses because they will set marginal cost equal to
marginal benefit.
(c) Adverse
selection can prevent efficient insurance markets from developing even when
everyone buys the same insurance.
(d) The optimal health care system will ration care: Some people who would
benefit from treatment should be denied that treatment.
(e) Moral hazard is
not a problem because nobody would intentionally do something that might make
them sick.
12. Market mechanisms are unlikely
to provide
(a) prices.
(b) nonrival goods
efficiently.
(c) supply and demand.
(d) none of the
above.
13. Public goods can be
(a) provided
privately.
(c) subject to free
rider problems.
(d) all of the above.
14. Externalities can be positive
because
(a) marginal damages
do not last over time.
(b) utility can
be impacted positively as well as negatively.
(c) there is no
concept for marginal benefit.
(d) positive externalities are subsidies.
15. A Pigouvian subsidy
(a) cannot exist
with externalities.
(b) is the same
thing as a Pigouvian tax.
(c) is measured in
terms of Pigouvian dollars.
(d) moves production to the socially optimal level of output
16. Which method can help in
obtaining a welfare improvement if externalites exist?
(a) Pigouvian taxes
(b) regulation
(c) assigning
property rights and permitting bargaining
(d) all of the above
17. Marginal damages
(a) must always be considered in social marginal costs.
(b) must not be
considered in social marginal costs.
(c) must sometimes
be considered in social marginal costs.
(d) have nothing to do with social marginal
costs.
18. In a public goods context, it is
difficult to measure impact on real income because
(a) public goods are
generally free to the public.
(b) they make up a small percentage of total
GDP.
(c) it is hard to measure how people value the public good.
(d) inflation
decreases the value of the good.
19. A fully funded Social Security
plan requires
(a) negative
generational accounts
(b) no taxes since current workers pay for
current retirees.
(c) future generations to pay for the benefits
of current retirees
(d) retirees to be paid from investments that have accumulated with
interest over their working lives. (e) all of the above.
20. Social insurance can be
justified on the grounds of
(a) adverse
selection.
(b) decision-making
costs.
(c) income
distribution.
(d) paternalism.
(e) all of the above.
21. Statutory incidence of a tax
deals with
(a) the amount of revenue left over after
taxes.
(b) the amount of taxes paid after accounting
for inflation.
(c) the person(s) legally responsible for paying the tax.
(d) the amount of
tax revenue generated after a tax is imposed.
(e) none of the
above.
22. An ad valorem tax is
(a) given as a
proportion of the price.
(b) Latin for “buyer
beware.”
(c) identical to a
unit tax.
(d) computed using
the “inverse taxation rule.”
23. Lump sum taxes
(a) create no excess
burden.
(b) are not as widely used as other forms of
taxation.
(c) generally lack a
sense of equity.
(d) all of the above.
(e) none of the
above.
24. If the proceeds from a Pigouvian
tax are used to income tax rates, then efficiency in both markets.
(a) increase;
increases
(b) reduce; reduces
(c) increase; reduces
(d) reduce; increases
(e) none of the above
25. “For goods that are unrelated in consumption, efficiency requires
that tax rates be inversely proportional to elasticities.” This is the
definition of
(a) the
benefits-received principle.
(b) the Ramsey Rule.
(c) the second best
principle.
(d) the inverse
elasticity rule.
(e) horizontal equity.
ANSWERS
1
|
C
|
2
|
A
|
3
|
D
|
4
|
C
|
5
|
D
|
6
|
D
|
7
|
E
|
8
|
B
|
9
|
B
|
10
|
D
|
11
|
D
|
12
|
B
|
13
|
D
|
14
|
B
|
15
|
D
|
16
|
D
|
17
|
A
|
18
|
C
|
19
|
D
|
20
|
E
|
21
|
C
|
22
|
A
|
23
|
D
|
24
|
D
|
25
|
B
|
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