Public Economics Exam Practice Tests
Course Introduction
Public Economics explores the role of government in the economy, examining how public policy affects efficiency and equity in the allocation of resources. The course covers fundamental concepts such as market failures, public goods, externalities, taxation, and government expenditure. Students analyze how governments raise revenue, the effects of tax policies on behavior and welfare, and the rationale behind various social programs. Through theoretical models and empirical evidence, the course provides insights into the design and evaluation of public policies, equipping students to critically assess the impact of government intervention on economic outcomes.
Recommended Textbook
Microeconomics 10th Edition by William Boyes
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22 Chapters
2295 Verified Questions
2295 Flashcards
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Page 2
Chapter 1: The Wealth of Nations: Ownership and Economic Freedom
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) A piece of land is divided between John and Mary. However, only John gets the title to his share of land. Which of the following is true?
A)Both Mary and John will not take care of their lands.
B)Mary will have a higher per capita output from her piece of land.
C)John will not be able to rent out a portion of his land.
D)Mary will have a greater incentive than John to invest in her piece of land.
E)John will be able to use his land as collateral for a loan from a bank.
Answer: E
Q2) Every society must deal with the problem of scarcity because:
A)people do not have enough money to buy everything they need.
B)government levies heavy taxes on households and firms.
C)human beings become satiated as consumption increases.
D)human wants are nearly unlimited relative to the availability of resources.
E)productive resources, technology, and labor are unlimited.
Answer: D
Q3) The greater the economic freedom in a country, the higher is the index of human development.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Scarcity and Opportunity Costs
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Sample Questions
Q1) Suppose a society begins by producing 3 units of X and 4 units of Y and then alters production to 4 units of X and 4 units of Y. If the quantity and quality of resources and the technology being used remain unchanged, then:
A)3 units of X and 4 units of Y are a combination best represented by a point inside the production possibilities curve [PPC].
B)we can conclude that the society has moved along the PPC.
C)we can conclude that resources were being fully utilized at 3 units of X and 4 units of Y.
D)we can conclude that resources were being efficiently utilized at 3 units of X and 4 units of Y.
E)3 units of X and 4 units of Y are a combination best represented by a point outside the PPC.
Answer: A
Q2) There is no cost of using your own savings in your business.
A)True
B)False
Answer: False
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4
Chapter 3: Markets and the Price System
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Sample Questions
Q1) Refer to Table 3.1. If Quantity Demanded 1, Quantity Demanded 2, and Quantity Demanded 3 are market demand schedules, then the change from Quantity Demanded 1 to Quantity Demanded 3 may have been due to:
A)an increase in price.
B)an increase in the number of sellers.
C)a decrease in price.
D)a decrease in the number of buyers.
E)an increase in the price of a substitute good.
Answer: D
Q2) A price floor is the minimum price that consumers have to pay for a particular product.
A)True
B)False
Answer: True
Q3) When a market is in surplus, there is pressure for the price to move upward.
A)True
B)False
Answer: False
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Chapter 4: The Aggregate Economy
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Sample Questions
Q1) An enterprise that has only one shareholder does not constitute a corporation.
A)True
B)False
Q2) Which of the following is true of Western Europe, Japan, Canada, Mexico, and China taken together?
A)All these countries are classified as high-income countries by the World Bank.
B)They are all members of the North American Free Trade Agreement [NAFTA].
C)All these countries are considered developing countries by the World Bank.
D)They are collectively the largest trade partners of the U.S.
E)They are the five largest exporters of agricultural produce in the world.
Q3) Households and firms pay taxes to the government to:
A)increase their consumption spending.
B)finance the country's import bill.
C)increase their savings.
D)improve their standard of living.
E)finance government expenditures.
Q4) An unmarried couple holding joint title to their condominium constitutes a household.
A)True
B)False
Page 6
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Chapter 5: Using Economics to Understand the World
Around You
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Refer to figure 5.1. Under which of the following conditions, would the residents of the country choose to consume luxury goods?
A)When there is an increase in the price of luxury goods
B)When there is a decrease in the prices of inferior goods
C)When there is an increase in the prices of goods that are necessities
D)When there is an increase in the per capita income of households
E)When there is a decrease in the per capita income of households
Q2) Which of the following will possibly cause a leftward shift in the production possibility curve, representing good X and good Y?
A)A decrease in a country's GDP
B)An increase in the price of good X
C)An increase in the price of good Y
D)A decrease in the price of good Y
E)A decrease in the price of good X
Q3) In the United States, there is a federal minimum wage that is followed by each state.
A)True
B)False
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Page 7
Chapter 6: Elasticity: Demand and Supply
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Sample Questions
Q1) Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent. The quantity consumed of herbal tea declines immediately by 25 percent. Everything else held constant, the:
A)cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are substitutes.
B)cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements.
C)cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are substitutes.
D)cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are complements.
E)cross-price elasticity of demand cannot be determined from the information provided.
Q2) Price elasticity of demand measures the responsiveness of quantity demanded in a market to a change in price.
A)True
B)False
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Chapter 7: Demand: Consumer Choice
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142 Flashcards
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Sample Questions
Q1) Assume MU<sub>X</sub> = 30 utils, MU<sub>Y</sub> = 15 utils, P<sub>X</sub> = $2, and P<sub>Y</sub> = $0.50. This consumer:
A)should buy less of X and less of Y.
B)is in equilibrium.
C)should buy more of X and less of Y.
D)should buy less of X and more of Y.
E)should buy more of X and more of Y.
Q2) A price change triggers the income effect but not the substitution effect.
A)True
B)False
Q3) An indifference map shows _____.
A)all combinations of two goods that a consumer can afford to purchase
B)all combinations of two goods that provide the same level of utility
C)a set of indifference curves for a representative consumer
D)all combinations of price and quantity that provide the same level of utility
E)the combination of goods that a consumer can afford to buy
Q4) The theory of bounded rationality states that it is likely for consumers to have perfect information.
A)True
B)False
Page 9
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Chapter 8: Supply: the Costs of Doing Business
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105 Flashcards
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Sample Questions
Q1) The planning horizon refers to the short run, when the firm must plan how much of a variable input to apply to a fixed input.
A)True
B)False
Q2) The phrase "to spread the overhead" refers to reducing the costs that are not directly attributable to the production process.
A)True B)False
Q3) Overhead costs are identical to fixed costs.
A)True
B)False
Q4) In Table 8.5, the marginal cost of producing the third unit of output is:
A)$7.
B)$8.
C)$3.
D)$4.
E)$6.
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Chapter 9: Profit Maximization
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121 Flashcards
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Sample Questions
Q1) In Table 9.1, in order to maximize profits, the firm should produce ____ units of output.
A)five
B)six
C)seven
D)eight
E)nine
Q2) Identify the characteristics of a monopoly firm.
A)The existence of barriers to entry and production of a homogeneous product
B)The production of a unique product and a large number of sellers in the market
C)The production of a standardized product and the firm is a price taker
D)The existence of barriers to entry and the firm is a price taker
E)The existence of barriers to entry and the firm is a price maker
Q3) Refer to Figure 9.2. At a quantity of 10 units, the firm should _____ , and at a quantity of 75 units, the firm should _____.
A)leave the level of production unchanged; also leave production unchanged
B)leave the level of production unchanged; decrease production
C)increase production; decrease production
D)increase production; leave production unchanged
E)decrease production; increase production
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Chapter 10: Perfect Competition
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135 Flashcards
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Sample Questions
Q1) When the marginal costs of firms in perfect competition increases, the short-run supply curve of the industry will shift to the left.
A)True
B)False
Q2) Why is a perfectly competitive firm said to be a price taker?
A)It produces such a good which is not produced by any other firm in the market.
B)It faces a downward sloping market demand curve.
C)The firm's individual production is insignificant relative to the production in the industry.
D)There are no barriers to the entry of new firms in the industry.
E)The firm's marginal-revenue curve is downward sloping.
Q3) A firm whose price is below its average cost:
A)is earning negative economic profit.
B)is earning positive economic profit.
C)is just breaking even.
D)is earning zero economic profit.
E)is earning zero accounting profit.
Q4) A perfectly competitive firm faces a downward sloping market demand curve.
A)True
B)False
Page 12
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Chapter 11: Monopoly
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Sample Questions
Q1) According to Figure 11.8, what will be the price charged by a perfectly competitive firm?
A)P<sub>4</sub>
B)P<sub>3</sub>
C)P<sub>2</sub>
D)P<sub>1</sub>
E)0
Q2) According to Figure 11.7, which of the following statements is incorrect about the price P<sub>1</sub>?
A)The monopolist is maximizing profit at P<sub>1.</sub>
B)The price P<sub>1</sub> is not equal to the demand curve or marginal revenue for the perfectly competitive firm.
C)The monopolist is earning normal profit at P<sub>1.</sub>
D)The monopolist sells 10,000 units of output at P<sub>1</sub> <sub>.</sub>
E)The perfectly competitive firm produces 10 units of output at P<sub>1.</sub>
Q3) Grocery coupons and mail-in rebates are forms of price discrimination.
A)True
B)False
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Page 13
Chapter 12: Monopolistic Competition and Oligopoly
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114 Flashcards
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Sample Questions
Q1) A cartel attempts to increase profits in the industry by limiting the production of each member firm.
A)True
B)False
Q2) Which of the following statements about a monopolistically competitive firm, in the short run, is true?
A)Profits will be maximized at the point at which price equals marginal cost and hence there is no deadweight loss.
B)The firms earn zero economic profit in the short run.
C)The firms achieve allocative and productive efficiency in the short run.
D)Advertising may enable a firm to charge a higher price than that charged by rival firms.
E)It faces a perfectly elastic demand curve.
Q3) The objective of creating a brand name is:
A)to reduce the price of the product.
B)to ensure a steady supply of the good in the market.
C)to reduce the price elasticity of demand.
D)to reduce the cost of production of the firm.
E)to attract rival firms into the market.
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Page 14
Chapter 13: Markets and Government
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113 Flashcards
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Sample Questions
Q1) In order to reduce the possibility of adverse selection, banks should raise the interest rates charged on loans.
A)True
B)False
Q2) A market failure occurs when the market outcome is not the socially efficient outcome.
A)True
B)False
Q3) In Figure 13.2, external costs are equal to _____.
A)P<sub>s</sub> P<sub>p</sub>
B)da
C)Q<sub>p</sub> Q<sub>s</sub>
D)ab
E)bc
Q4) The social cost of a transaction is _____.
A)the sum of fixed and variable costs
B)the difference between the total cost and opportunity cost
C)the sum of private and external costs
D)the difference between the private and external costs
E)the sum of fixed costs and opportunity costs
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Chapter 14: Antitrust and Regulation
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88 Flashcards
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Sample Questions
Q1) The antitrust laws in the United States were created in the late 1800s as a result of :
A)the emergence of large and dominant businesses in railroads, steel, oil, mining and finance.
B)the government decision to take responsibility for the improvement of trade deficit.
C)the first illegal cartel, created in late 1800s.
D)a steep decline in prices of primary goods in the United States.
E)the threats of an external aggression received by the country.
Q2) Sherman Antitrust Act bans price discrimination that substantially lessens competition or injures particular competitors.
A)True
B)False
Q3) According to Figure 14.2, the total clean up cost after the regulation is the:
A)area 0FIQ<sub>2</sub>.
B)area 0FGQ<sub>1</sub>.
C)area BEC.
D)area BEP<sub>1</sub>.
E)area BEGF.
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Chapter 15: Resource Markets
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) If the resource market is perfectly competitive, the marginal factor cost is equal to the price of the resource.
A)True
B)False
Q2) A firm is said to be a monopsonist if it is the sole seller of a commodity in the market.
A)True
B)False
Q3) If the elasticity of supply of a resource is greater than zero but less than infinity, its income will comprise of:
A)only economic rent.
B)only transfer earnings.
C)salaries and traveling allowances.
D)both economic rent and transfer earnings.
E)salaries, traveling allowances, as well as other incentives.
Q4) If the marginal factor cost is greater than the marginal revenue product of a resource, the producer can increase profits by laying off some units of the resource.
A)True
B)False
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Chapter 16: The Labor Market
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Sample Questions
Q1) When women and members of other minority groups are forced into occupations where they are unable to obtain the human capital necessary to compete for high paying jobs, it is termed as statistical discrimination.
A)True
B)False
Q2) The principal argument against comparable worth is that:
A)men and women differ largely in terms of their productivities.
B)market does not function correctly and leads to inefficient allocation of resources. C)market allocates scarce resources to their most valued use in the most efficient manner.
D)demand and supply do not allocate workers to where they are needed the most. E)legislation by the government are often appropriate as it processes all the available information correctly.
Q3) Since we all like to get richer, so when wage rate increases we always like to work longer hours to make more income.
A)True
B)False
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18
Chapter 17: The Capital Market
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Sample Questions
Q1) According to the ratings given by Moody's and Standard and Poor's, _____ bonds are corporate bonds that carry the lowest risk and offer a lower yield.
A)A+
B)white collar
C)AA
D)blue chip
E)AA+
Q2) The equity market is said to be an efficient market because it is difficult for an investor to continually earn above-normal profits.
A)True
B)False
Q3) According to Figure 17.2, what will be a necessary result of a simultaneous increase in the supply of stocks from S to S' and decrease in the demand from D to D'?
A)A decrease in the price of the shares
B)An increase in the price of the shares
C)An increase in the amount of shares offered for sale
D)An increase in the volatility of the share
E)A decrease in the profits earned by the firms
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19
Chapter 18: The Land Market and Natural Resources
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Sample Questions
Q1) The supply curve of land, in the market for uses of land, is:
A)perfectly inelastic.
B)nonexistent.
C)perfectly elastic.
D)positively sloped.
E)negatively sloped.
Q2) Common ownership of resources:
A)is a system by which the government allocates the rights to harvest renewable resources.
B)may fail to ensure that harvesting of renewable resources does not exceed the maximum sustainable yield.
C)is an environmentally effective method of internalizing an externality problem in renewable resource conservation.
D)efficiently controls the harvest of renewable resources.
E)usually helps in preventing market failures.
Q3) The supply curve of an exhaustible resource shifts up as the marginal cost of extracting the resource increases.
A)True
B)False
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Page 20
Chapter 19: Current Issues: Income, Income Distribution,
Poverty, and Government Policy
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Sample Questions
Q1) _____ are most likely to be upwardly mobile within the income distribution of a country.
A)Single-earner families
B)College graduates
C)People who experience unemployment
D)Non-college graduates
E)Retired individuals
Q2) Individuals have a tradeoff between leisure and work. When income from working is taxed, the cost of leisure is reduced in relative terms.
A)True
B)False
Q3) Refer to Table 19.2. The tax structure which leads to maximum income inequality is:
A)Beta.
B)Alpha.
C)Eta.
D)Gamma.
E)Delta.
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Page 21
Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) According to the Ricardian model, the source of comparative advantage is:
A)differences in labor productivity in different countries.
B)differences in foreign trade policies followed by the government of various countries.
C)differences in resource endowments of an economy.
D)differences in the fields of research and development in a country.
E)differences in the taste and preferences of the consumers in different countries.
Q2) Based on Scenario 20.2, which of the following terms of trade would benefit both countries?
A)1 pound of cocoa is equal to 0.10 bushels of corn.
B)1 pound of cocoa is equal to 2 bushels of corn.
C)1 pound of cocoa is equal to 1 bushels of corn.
D)1 pound of cocoa is equal to 0.5 bushels of corn.
E)1 pound of cocoa is equal to 1.5 bushels of corn.
Q3) A sudden appreciation in the exchange rate of a country deteriorates the terms of trade of the country.
A)True
B)False
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Page 22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) Proponents of strategic trade policy contend that:
A)government should tax domestic firms to generate greater revenues.
B)government should encourage imports to prevent monopoly in the domestic market.
C)government should provide subsidies to domestic firms with decreasing costs.
D)government should discourage domestic firms with decreasing costs from continuing production.
E)government should tax domestic import competing firms.
Q2) According to Figure 21.1, if the international price of the good is P<sub>1</sub>, which of the following statements is true?
A)The domestic market is in equilibrium.
B)There is an excess supply in the domestic market by the amount Q<sub>4</sub>Q<sub>2</sub>.
C)The country will export Q<sub>3</sub> - Q<sub>1</sub> units of the good.
D)There is an excess demand of Q<sub>4</sub> - Q<sub>2</sub> units in the domestic market.
E)The country needs to import Q<sub>5</sub> - Q<sub>1</sub> units of the good to satisfy domestic demand.
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Page 23
Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) If a dollar invested in the United States yields the same return as a dollar's worth of yen invested in Japan, then it implies that:
A)purchasing power parity exists.
B)the foreign exchange market is in equilibrium.
C)the dollar/yen exchange rate is fixed.
D)interest rate parity exists.
E)both the currencies are pegged to a fixed amount of gold.
Q2) Other things equal, the higher the deviations from purchasing power, the lesser will be the arbitrage opportunities.
A)True
B)False
Q3) A commodity money standard exists when exchange rates are:
A)artificially pegged to the price of oil.
B)fixed in terms of gold, thus creating flexible exchange rates between countries.
C)fixed in terms of gold, thus creating fixed exchange rates between countries.
D)allowed to fluctuate based on the values of different currencies.
E)fixed, based on the values of different currencies, in terms of some commodity.
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Page 24