Public Economics
Exam Materials
Course Introduction
Public Economics explores the role of government in the economy, focusing on how public policy can correct market failures, redistribute income, and provide public goods and services. The course delves into the theory and practice of taxation, public spending, and government regulation, analyzing the impact of fiscal decisions on efficiency and equity. Students will learn to apply economic tools to evaluate the effectiveness of policies addressing social welfare, externalities, and public sector budgeting, with discussions on real-world issues such as healthcare, education, and social insurance programs.
Recommended Textbook
Microeconomics 6th Edition by R. Glenn Hubbard
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18 Chapters
4659 Verified Questions
4659 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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234 Verified Questions
234 Flashcards
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Sample Questions
Q1) What is opportunity cost?
Answer: Opportunity cost refers to the highest-valued alternative that must be given up to engage in an activity.For example, the opportunity cost of taking this economics class is what you are giving up to take the class, which may be taking another class such as accounting or psychology, working extra hours at your job, or extra sleep (whichever is your highest-valued alternative).
Q2) Which of the following is a positive economic statement?
A)People should not buy SUVs.
B)The government should mandate electric automobiles.
C)Scarcity necessitates that people make trade-offs.
D)Foreign workers should not be allowed to work for lower wages than the citizens of a country.
Answer: C
Q3) Households ________ factors of production and ________ goods and services.
A)supply; demand
B)supply; supply
C)demand; supply
D)demand; demand
Answer: A
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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258 Verified Questions
258 Flashcards
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Sample Questions
Q1) Refer to Table 2-9.Guatemala has a comparative advantage in the production of A)canoes.
B)sailboats.
C)both products.
D)neither product.
Answer: A
Q2) Refer to Table 2-3.Assume Dina's Diner only produces sliders and hot wings.A combination of 80 sliders and 100 hot wings would appear
A)along Dina's production possibilities frontier.
B)inside Dina's production possibilities frontier.
C)outside Dina's production possibilities frontier.
D)at the vertical intercept of Dina's production possibilities frontier.
Answer: A
Q3) Refer to Table 2-10.Which of the following statements is true?
A)Horace has an absolute advantage in both tasks.
B)Tammi has an absolute advantage in both tasks.
C)Horace has an absolute advantage in dog grooming and Tammi in cat bathing.
D)Horace has an absolute advantage in cat bathing and Tammi in dog grooming.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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242 Verified Questions
242 Flashcards
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Sample Questions
Q1) By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
A)quantity; price; quantity
B)price; quantity; quantity
C)price; quantity; price
D)quantity; price; price
Answer: C
Q2) Refer to Figure 3-4.At a price of $15, how many units will be sold?
A)300
B)400
C)600
D)700
Answer: B
Q3) As the number of firms in a market decreases, the supply curve will shift to the left and the equilibrium price will rise.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
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208 Verified Questions
208 Flashcards
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Sample Questions
Q1) Refer to Figure 4-1.Arnold's marginal benefit from consuming the fourth burrito is
A)$0.
B)$1.00.
C)$2.50.
D)$3.00.
Q2) Shortage means the same thing as scarcity.
A)True
B)False
Q3) Which term refers to a legally established minimum price that firms may charge?
A)a price ceiling
B)a subsidy
C)a price floor
D)a tariff
Q4) Marginal benefit is equal to the ________ benefit a consumer receives from consuming one more unit of a good or service.
A)total
B)unintended
C)additional
D)surplus
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Chapter 5: Externalities, Environmental Policy, and Public Goods
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263 Verified Questions
263 Flashcards
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Sample Questions
Q1) Should the level of pollution be reduced to zero and if not, then to what level?
Q2) Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?
A)PE
B)the value of the area QBBEQE
C)PE × QE
D)the value of the area BEF
Q3) Refer to Figure 5-7.The marginal cost of reducing pollution curve is the same curve as
A)the supply of pollution reduction curve.
B)the demand for pollution reduction curve.
C)the negative externality curve.
D)the value of pollution reduction curve.
Q4) A quasi-public good differs from a public good in that unlike a public good, it is possible to keep those who do not pay for the quasi-public good from enjoying the benefits of the good.
A)True
B)False
Q5) State the Coase theorem.
Page 7
Q6) What are some of the limitations of the Coase theorem in practice?
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Page 8
Chapter 6: Elasticity: the Responsiveness of Demand and Supply
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295 Verified Questions
295 Flashcards
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Sample Questions
Q1) In the alcohol industry, both wine and spirits are considered to be substitutes for beer.
A)True
B)False
Q2) The most important determinant of the price elasticity of demand for a good is
A)the definition of the market for a good.
B)the availability of substitutes for the good.
C)the share of the good in the consumer's budget.
D)whether the good is a necessity or a luxury.
Q3) When Audrina raised the price of her homemade cookies, her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.
A)True
B)False
Q4) If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.
A)True
B)False
Q5) Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?
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Chapter 7: The Economics of Health Care
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171 Verified Questions
171 Flashcards
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Sample Questions
Q1) Refer to Figure 7-1.At the efficient equilibrium
A)economic surplus is maximized.
B)economic surplus is minimized.
C)economic surplus is zero.
D)economic surplus is negative.
Q2) Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance?
A)The characteristics of a large group are likely to reflect those of the entire population.
B)It is easier to accurately predict the number of claims for a group than for an individual.
C)When all group members pay the premium, the problem of moral hazard is reduced.
D)When all group members pay the premium, the problem of adverse selection is reduced.
Q3) The Japanese system of universal health insurance requires no co-payments from residents for health services.
A)True
B)False
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Chapter 8: Firms, the Stock Market, and Corporate Governance
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264 Verified Questions
264 Flashcards
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Sample Questions
Q1) What is the present value of $888 in a one year if the current rate of interest is five percent?
A)$4,440
B)$845.71
C)$177.60
D)none of these
Q2) If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share, and you have an alternative investment of equal risk that will earn a 9 percent rate of return, what would you be willing to pay per share for this stock?
A)$9
B)$20
C)$45
D)$100
Q3) Dividing the dividend payment by the stock's closing market price determines the A)coupon payment.
B)dividend yield.
C)price-earnings ratio.
D)selling price of the stock.
Q4) How do firms raise external funds through indirect finance?
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Chapter 9: Comparative Advantage and the Gains From International Trade
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188 Verified Questions
188 Flashcards
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Sample Questions
Q1) Refer to Table 9-1.Select the statement that accurately interprets the data in the table.
A)Sandy has a comparative advantage in dog grooming.
B)Linda has a comparative advantage in dog grooming.
C)Linda has a comparative advantage in dog grooming and dog bathing.
D)Sandy has a comparative advantage in dog bathing.
Q2) The United States has developed a comparative advantage in film production due to the film industry being long-established in southern California, and lower costs result from the size of the industry in the area.This source of comparative advantage is referred to as
A)the abundance of natural resources.
B)superior process technology.
C)external economies.
D)best practices of unskilled labor.
Q3) Refer to Table 9-6.Prior to trade, what was the opportunity cost to produce 1 clock in Denmark?
A)1/6 of a hat
B)2/3 of a hat
C)1.5 hats
D)6 hats
Page 12
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Chapter 10: Consumer Choice and Behavioral Economics
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300 Verified Questions
300 Flashcards
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Sample Questions
Q1) Behavioral economics refers to the study of situations
A)where consumers and firms appear to make choices that are appropriate to reach their goals.
B)where consumers and firms appear to value fairness when they make choices.
C)where consumers and firms disobey the laws of demand and supply.
D)where consumers and firms do not appear to be making choices that are economically rational.
Q2) What must be true in terms of the income effect, the substitution effect, and the type of good for the good's demand curve to be upward sloping?
Q3) One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.
A)True
B)False
Q4) Refer to Figure 10-6.A change in the price of popcorn only is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)none of the above panels.
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Chapter 11: Technology, Production, and Costs
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328 Verified Questions
328 Flashcards
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Sample Questions
Q1) A characteristic of the long run that is not available in the short run is that a firm is free to vary its output.
A)True
B)False
Q2) The explicit cost of production is also called
A)variable cost.
B)accounting cost.
C)direct cost.
D)overhead cost.
Q3) The short run is the time period during which a firm has at least one input constraint.
A)True
B)False
Q4) A firm's short-run average total cost curve is parallel to its short-run average variable cost curve.
A)True B)False
Q5) In economics, what is the difference between the short run and the long run?
Q6) Describe the difference between technology and positive technological change.
Q7) What is the marginal product of labor and what is the average product of labor.
Page 14
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Chapter 12: Firms in Perfectly Competitive Markets
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296 Verified Questions
296 Flashcards
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Sample Questions
Q1) The demand curve for each seller's product in perfect competition is horizontal at the market price because
A)each seller is too small to affect market price.
B)the price is set by the government.
C)all the sellers get together and set the price.
D)all the demanders get together and set the price.
Q2) Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?
A)The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs.
B)Sales of cage-free eggs have increased at a rate of 20 percent per year.
C)As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production.
D)The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market.
Q3) Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.
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Chapter 13: Monopolistic Competition: the Competitive
Model in a More Realistic Setting
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274 Verified Questions
274 Flashcards
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Sample Questions
Q1) Which of the following is not a characteristic of long-run equilibrium in a monopolistically competitive market?
A)Selling price equals average total cost.
B)Production is at minimum average total cost.
C)Marginal revenue equals marginal cost.
D)Selling price is greater than marginal cost.
Q2) Refer to Figure 13-8.What is the firm's profit-maximizing price?
A)$12
B)$13
C)$14
D)$16
Q3) When a monopolistically competitive firm cuts its price to increase its sales, it experiences a loss in revenue due to the A)substitution effect.
B)income effect.
C)price effect.
D)output effect.
Q4) How would a marketing campaign directed at single women improve the chances of success at a place like a cigar bar?
Page 16
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Chapter 14: Oligopoly: Firms in Less Competitive Markets
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259 Verified Questions
259 Flashcards
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Sample Questions
Q1) Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price.What is the greatest deterrent to this strategy?
A)The firms may find that the price they charge is greater than the price that would maximize their profits.
B)An agreement by firms to charge high prices is illegal. The government can fine the firms and send their managers to jail.
C)Consumers may resent having to pay high prices and not buy from either of the firms.
D)One of the firms may decide to lower its price and take business away from the firm that charged the high price.
Q2) In game theory, the three key characteristics of a game are
A)rules, strategies, and payoffs.
B)rules, regulations, and payoffs.
C)winners, losers, and rules.
D)risks, rewards, and penalties.
Q3) Most economists are concerned about entry barriers.Why is this so important to them?
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Page 17
Chapter 15: Monopoly and Antitrust Policy
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279 Verified Questions
279 Flashcards
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Sample Questions
Q1) Refer to Figure 15-2.If the firm's average total cost curve is ATC , the firm will
A)suffer a loss.
B)break even.
C)make a profit.
D)face competition.
Q2) Refer to Figure 15-4.What is the amount of the monopoly's total cost of production?
A)$21,600
B)$17,700
C)$9,340
D)$7,800
Q3) Refer to Table 15-3.If Comcast wants to maximize its profits, what price (P)should it charge and how many cable subscriptions per month (Q)should it sell?
A)P = $12; Q = 8
B)P = $14; Q = 6
C)P = $16; Q = 4
D)P = $15: Q = 5
Q4) What happens to a monopoly's revenue when it sells more units of its product?
Q5) What is a public franchise? Are all public franchises natural monopolies?
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Chapter 16: Pricing Strategy
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261 Verified Questions
261 Flashcards
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Sample Questions
Q1) Which of the following will prevent firms from engaging in price discrimination?
A)yield management
B)arbitrage
C)transactions costs
D)odd pricing
Q2) The airline industry routinely engages in price discrimination across time.
A)True
B)False
Q3) Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.
A)$12.80
B)$15.20
C)$19.20
D)$21.60
Q4) Under what circumstances will the law of one price hold, and when might it not hold?
Q5) Are restaurant coupons a form of price discrimination? Why or why not?
Q6) What three conditions must hold for a firm to successfully price discriminate?
Page 19
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Chapter 17: The Markets for Labor and Other Factors of Production
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281 Verified Questions
281 Flashcards
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Sample Questions
Q1) Refer to Table 17-3.What is the amount of revenue added as a result of hiring the fourth worker?
A)$1,200
B)$7,200
C)15 microwaves
D)90 microwaves
Q2) Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If the last worker hired increases output by three units per hour, then to maximize profits the firm should
A)not change the number of workers it currently hires.
B)lay off some of its workers.
C)hire additional workers.
D)There is not enough information to answer the question.
Q3) Refer to Figure 17-4.Which of the following is true if the wage rate increases from W to W ?
A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is unit elastic.
Page 20
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Chapter 18: Public Choice, Taxes, and the Distribution of Income
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258 Verified Questions
258 Flashcards
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Sample Questions
Q1) Which of the following is an example of rent seeking behavior?
A)Apple earned large profits from the development and sale of the iPhone.
B)Amazon introduced the Kindle to compete with Sony's Digital Reader. Amazon was motivated by the desire to earn profits from the Kindle but also increased the choice of digital music players available to consumers.
C)U.S. sugar firms convinced Congress to impose a quota on imports of sugar.
D)Recent increases in cigarette taxes faced little opposition from voters, many of whom were rationally ignorant with respect to the tax.
Q2) What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the impact of the tax system on economic behavior?
Q3) When the demand for a product is less elastic than the supply, consumers pay the majority of the tax on the product.
A)True
B)False
Q4) Describe each of the principles governments consider when deciding which taxes to use.
Q5) Explain the effect of price elasticities of supply and demand on tax incidence.
Page 21
Q6) What is rent seeking and how is it related to regulatory capture?
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