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ECO 450 WK 8 Quiz 6 Ch 11 & 12

ECO 450 WK 8 Quiz 6 Ch. 11 & 12

True/False Questions

1. A lump-sum tax results in both income and substitution effects.

2. A consumer currently pays $500 a year retail sales taxes. She would be better off if she paid the same amount annually as a lump-sum tax.

3. Clothing is sold in perfectly competitive markets where no externalities prevail. An excise tax on clothing will result in a market price for clothing that equals the marginal social benefit and marginal social cost of service.

4. Assuming that the income effects are negligible and that beer is sold in a competitive market, a 10‑cent per can tax on beer that causes a 10,000 can per month decline in sales will result in an excess burden of $1,000 per month.

5. A tax on land results in an income effect on landlords but no substitution effect. Then it follows that the excess burden of a tax on land will be zero.

6. The excess burden of a tax on interest income is $5 billion per year. Total interest income per year is $50 billion. The tax currently collects $15 billion in revenue per year. The efficiency-loss ratio of the tax is therefore 0.33.

7. A payroll tax results in a difference between the gross wages paid by employers and the net wages received by workers.

8. If the market supply of labor services is perfectly inelastic, a tax on labor income will reduce the net wages received by workers by the full amount of the tax per labor hour.

9. If a $10 per unit tax is levied on the output of a monopolist, more of that tax will be shifted to consumers than would be the case if the same good were produced by a competitive industry.

10. A study indicates that taxes in the United States reduce the Gini coefficient for the nation by 10 percent. This implies that taxes make the income distribution more equal.

11. A lump-sum tax only results in income effects.

12. An income tax is an example of a price-distorting tax.

13. The more price-elastic the demand of a taxed item, the lower the excess burden of a tax on the sale of that item.

14. If the tax on the sale of gasoline is doubled from 20 cents per gallon to 40 cents per gallon, the excessburden of the tax will quadruple.

15. If the compensated elasticity of supply of labor is zero, then a tax on labor earnings will have zero excess burden.

16. Lump-sum taxes do not prevent prices from equaling the marginal social cost and benefit of any goods and services.

17. Lump-sum taxes can vary in amount based on income level.

18. A lump-sum tax can distort prices and affect consumption behavior.

Multiple Choice Questions

1. A lump-sum tax:

a. distorts market prices so that they do not simultaneously equal MSB and MSC.

b. can result in price changes but does not prevent prices from simultaneously being equal to MSB and MSC.

c. results in substitution effects that change prices.

d. results in both substitution effects and income effects that change prices.

2. The current price of compact discs, which are traded in perfectly competitive markets, is $10. A $1 per unit tax is levied on the discs. Annual record sales decline from five million to four million as a result of the tax. Assuming that the income effect of the tax-induced price change is negligible, the excess burden of the tax will be:

a. $500,000 per year.

b. $1 million per year.

c. $2 million per year.

d. $2.5 million per year.

3. The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

a. have a positive excess burden.

b. be shifted forward to tenants.

c. be paid entirely by landlords.

d. have zero excess burden.

e. both (c) and (d)

4. Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20 cents per gallon. The excess burden of the tax will:

a. remain the same.

b. double.

c. increase four times.

d. decline.

5. The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

a. the price received by sellers will fall by $400.

b. the price paid by buyers, including the tax, will increase by $400.

c. the quantity of cars sold per year will be unchanged.

d. the excess burden of the tax will be zero.

e. both (c) and (d)

6. Other things being equal, the more inelastic the demand for a taxed good,

a. the greater the portion of the tax paid by sellers.

b. the greater the excess burden of the tax.

c. the greater the portion of the tax paid by buyers.

d. the less the portion of a tax on sellers that can be shifted to buyers.

7. The market supply of labor is perfectly inelastic. However, the income effect of tax-induced wage changes are believed to be substantial. Then it follows that a tax on labor income will:

a. have zero excess burden.

b. have positive excess burden.

c. be paid entirely by workers as a reduction in net wages.

d. both (a) and (c)

e. both (b) and (c)

8. Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

a. decrease the price of food.

b. increase the price of housing.

c. decrease the price of housing.

d. have no effect on either the price of food or housing.

9. Differential tax incidence measures the effect:

a. that a tax and the expenditures it finances have on the distribution of income.

b. that one tax alone has on the distribution of income.

c. on the distribution of income of substituting one tax for another while holding the size and composition of the budget fixed.

d. on the distribution of income of substituting one tax for another while changing the kinds of government services financed.

10. Most studies of tax incidence assume that taxes on labor income and other input services are borne entirely by the workers and other input owners that supply the services. This implies that the:

a. supply of those input services is very elastic.

b. supply of those input services is of unitary elasticity.

c. supply of those input services is perfectly inelastic.

d. demand for those input services is perfectly elastic.

11. Most studies show that the price elasticity of demand for gasoline is –0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

a. have no effect on the market equilibrium price of gasoline.

b. cause the market equilibrium price of gasoline to fall.

c. cause the market equilibrium price paid by buyers to rise.

d. cause the net price received by sellers to fall.

e. both (c) and (d)

12. The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of medical services and is collected from medical-care providers, then:

a. the incidence of the tax is likely to be borne entirely by medical-care providers.

b. most of the tax is likely to be shifted to those who purchase medical care.

c. the market equilibrium price of medical care will fall.

d. the excess burden of the tax is likely to be very high.

13. Which of the following is true about a lump-sum tax?

a. It prevents efficiency from being attained in competitive markets.

b. It causes substitution effects.

c. It causes income effects.

d. It causes both income effects and substitution effects.

14. Housing construction is generally believed to be an industry of constant costs. In the long run, which of the following is true if a $10 per square foot tax on housing construction is collected directly from builders?

a. The incidence of the tax will be borne by builders.

b. The excess burden of the tax will be zero.

c. The quantity of new construction supplied will be unaffected.

d. The tax will be fully shifted to buyers of new construction.

15. If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor is –2, then which of the following is likely to result from a tax on labor earnings?

a. The tax will be fully borne by workers.

b. Some of the tax will be shifted to employers as market equilibrium wages increase.

c. Market equilibrium wages will decline.

d. There will be no effect on market equilibrium wages.

16. If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line prior to the tax:

a. remains unchanged.

b. increases.

c. decrease.

d. can increase and decrease in different regions.

17. Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to the budget line without the tax.

a. less steep

b. more steep

c. similar

d. varying

18. A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by 1000 units. What is the deadweight loss (ignore price elasticities)?

a. $300.00

b. $100.00

c. $150.00

d. Cannot be determined.

19. If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

a. the demand is perfectly inelastic.

b. the supply is perfectly inelastic.

c. there is no deadweight loss.

d. All of the above.

20. The efficiency-loss ratio relative to tax is:

a. the deadweight loss less the tax revenue.

b. the deadweight loss divided by the tax revenue reduced by one.

c. the excess burden divided by the tax revenue.

d. None of the above.

ECO 450 WK 8 Assignment 2 The Value Added Tax

ECO 450 WK 8 Assignment 2 - The Value-Added Tax Is It Good for the United States

Write a five to seven (5-7) page paper that answers the following:

1. Explain the concept of value-added tax (VAT). This should be one to two (1-2) pages long.

2. Analyze the pros and cons of imposing a VAT.

3. Evaluate the merits of imposing a VAT in the United States.

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ECO 450 WK 8 Assignment 2 The Value Added Tax

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ECO 450 WK 8 Assignment 2 The Value Added Tax

ECO 450 WK 7 Quiz 5 Ch 10

ECO 450 WK 7 Quiz 5 Ch. 10

True/False Questions

1. Taxes simultaneously ration and finance government goods and services.

2. The federal government finances only half of its expenditures with taxes.

3. The benefit principle argues that the means of financing government goods and services should be linked to the benefits received from those goods and services.

4. Horizontal equity is achieved when individuals of the same economic capacity pay the same amount of taxes over a given period.

5. A flat-rate income tax is a proportional tax on an income base.

6. The marginal tax rate will eventually exceed the average tax rate if the tax rate structure is proportional.

7. The marginal tax rate for a payroll tax is 7 percent on all wages up to $60,000 per year. The marginal tax rate for wages in excess of $60,000 per year is zero. The payroll tax is therefore a regressive tax.

8. Tax evasion would be less of a problem if tax rates were lowered.

9. The user charge for a congestible public good should be zero at all times.

10. Zero prices for price-excludable government services provide benefits only to the poor.

11. The gasoline tax is an example of a general tax on consumption.

12. For a proportional tax, the marginal tax rate is always equal to the average tax rate.

13. Tax avoidance is an illegal activity in the United States.

14. An increase in marginal tax rates is likely to increase tax evasion.

15. Most studies indicate that state-run lotteries are equivalent to a progressive tax on gambling.

16. Government activity requires the reallocation of resources from government to private use.

17. A flat income tax (i.e. a fixed amount paid by every taxpayer) is an example of a selective tax.

18. The average tax rate and marginal tax rate are the same under a progressive tax rate structure.

Multiple Choice Questions

1. According to the benefit principle,

a. taxes should be distributed according to ability to pay.

b. user charges are an ideal source of finance for government goods and services.

c. the progressive income tax represents the ideal way of distributing taxes among citizens.

d. flat-rate taxes are always the best kind.

2. If horizontal equity is achieved in taxation,

a. vertical equity will also be achieved.

b. individuals of equal economic capacity will pay equal taxes.

c. a flat-rate tax will be used.

d. the tax system will not result in losses in efficiency in markets.

3. The tax base of a payroll tax is:

a. consumer expenditures.

b. interest income.

c. labor income.

d. both (b) and (c)

4. A 5-percent retail sales tax on all consumer purchases in a state is imposed. The sales tax is:

a. a flat-rate tax.

b. a tax with a regressive rate structure.

c. levied on an income base.

d. all of the above

5. A tax on the value of real estate holdings is a:

a. selective tax on wealth.

b. general tax on wealth.

c. general tax on income.

d. selective tax on income.

6. An excise tax is a:

a. general consumption tax.

b. selective consumption tax.

c. general wealth tax.

d. selective tax on wealth.

7. A proportional income tax has an average tax rate that:

a. always is less than the marginal tax rate.

b. always exceeds the marginal tax rate.

c. equals the marginal tax rate at first and then becomes less than the marginal tax rate.

d. always equals the marginal tax rate.

8. A payroll tax taxes a worker’s wages at 14 percent until the worker earns $60,000 per year. All labor earnings in excess of $60,000 are not subject to tax. The tax rate structure of the payroll tax is therefore:

a. proportional.

b. progressive.

c. regressive.

d. flat-rate.

9. A bridge becomes congested after 100 vehicles per hour use it on any day. To achieve efficiency, a toll:

a. that charges all users of the bridge, no matter how many vehicles use it per hour, should be imposed.

b. on additional users in excess of 100 per hour should be imposed.

c. on all users should be imposed, if more than 100 users per hour are expected.

d. is not required.

10. A government prints money to finance its expenditures. As a result,

a. the economy can operate at a point outside its production possibility curve.

b. inflation will occur.

c. consumers will give up private goods to finance the increased government expenditures.

d. both (b) and (c)

11. Taxes are likely to affect:

a. market equilibrium.

b. political equilibrium.

c. the distribution of income.

d. all of the above

12. Taxes:

a. are voluntary payments to governments.

b. are unlikely to affect market supply and demand.

c. never affect efficiency in the allocation of resources.

d. are compulsory payments associated with certain activities.

13. A tax on real estate is a:

a. general wealth tax.

b. general consumption tax.

c. selective wealth tax.

d. selective income tax.

14. The marginal tax rate will eventually exceed the average tax rate for a:

a. proportional tax.

b. regressive tax.

c. progressive tax.

d. flat-rate tax.

15. Marginal tax rates were reduced in 2001. Other things being equal, this is likely to:

a. increase tax evasion.

b. decrease tax evasion.

c. have no effect on tax evasion.

d. increase tax avoidance.

16. What is an example of a normative criterion that a government must trade-off in its method of

taxation?

a. Equity

b. Efficiency

c. Administrative ease

d. all of the above

17. Tax avoidance is:

a. a means of tax evasion.

b. a means of decreasing taxes paid by adjusting behavior.

c. a political process explicitly for the reduction of taxation.

d. a means to avoid tax owed.

18. If the marginal tax rate is 20% under a proportional tax rate structure, the average tax rate:

a. should be 20%.

b. should be above 20%.

c. should be below 20%.

d. cannot be determined.

19. If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax rate is:

a. 30%.

b. 25%.

c. 42%.

d. not able to be determined.

20. Which of the following countries has the highest average tax rate relative to GDP?

a. Japan

b. Sweden

c. Iceland

d. United Kingdom

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ECO 450 WK 7 Quiz 5 Ch 10

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ECO 450 WK 7 Quiz 5 Ch 10

ECO 450 WK 6 Quiz 4 Ch 8 & 9

ECO 450 WK 6 Quiz 4 Ch. 8 & 9

True/False Questions

1. The Social Security pension system is a fully funded retirement plan.

2. Social Security pension benefits are transfers from workers to retirees.

3. Social Security pensions are financed by voluntary contributions by workers.

4. The gross replacement rate measures the ratio of taxes paid per year by workers to their annual Social Security pension when they retire.

5. In the year prior to retirement, a worker earned $20,000 and paid $5,000 in taxes on those earnings. His annual Social Security pension is $10,000 per year. Then it follows that his net replacement rate is 50 percent.

6. The gross replacement rate for Social Security pensions is the same for all workers independent of their preretirement earnings.

7. The annual growth in wages subject to Social Security taxes is 3 percent. Given the payroll tax rate, the growth in funds available to pay pension benefits is also 3 percent.

8. The asset-substitution effect of Social Security pensions discourages saving.

9. The availability of Social Security pensions to workers over normal retirement age results in an income effect unfavorable to work but no substitution effect.

10. The bequest effect of Social Security encourages workers to save less.

11. The normal retirement age for Social Security old-age pensions is 67 for people born in the United States in 1960 or later.

12. Workers in the United States can retire under Social Security at age 62 with lower pensions than they would receive at their normal retirement age.

13. As of 2009, retired workers between the ages of 62 and their normal retirement age were subject to an “earnings test” that reduced their pension by $1 for each $2 of earnings after a certain minimum level of earnings.

14. Reducing the replacement rate will have no effect on the tax rate necessary to finance pensions under a pay-as-you-go, tax-financed pension system.

15. Workers who quit their jobs are eligible for unemployment insurance benefits in the United States.

16. By 2050, the expected percentage of the U.S. population that is considered elderly will be less than 20%.

17. Social Security was created in 1965.

18. On average, the elderly are less likely to be poor when compared to the rest of the U.S. population.

Multiple Choice Questions

1. The Social Security retirement system:

a. is a fully funded pension system.

b. is a tax-financed system that pays benefits from taxes that are invested to return principal and interest to workers when they retire.

c. is a tax-financed retirement system that finances pensions by taxing workers each year and transferring the bulk of revenues obtained directly to retirees.

d. does not use taxes on workers to pay pensions to retirees.

2. The gross replacement rate:

a. measures a worker’s monthly retirement benefit divided by monthly earnings before taxes in the year prior to retirement.

b. measures a worker’s monthly retirement benefit divided by monthly earnings after taxes in the year prior to retirement.

c. is an increasing function of gross monthly earnings prior to retirement.

d. is independent of gross monthly earnings prior to retirement.

3. A worker earns $2,000 per month before taxes. He pays $140 per month payroll tax on those wages. In addition, the income taxes on those wages are $360 per month. On retirement, the worker receives a Social Security pension of $750 per month. Which of the following statements is true?

a. The worker’s gross replacement rate is 50 percent.

b. The worker’s net replacement rate is 50 percent.

c. The worker’s net replacement rate is 38 percent.

d. The worker’s net replacement rate is 75 percent.

4. The growth in hourly wages over the past 50 years has averaged about 2 percent per year. However, the growth in Social Security pensions has far exceeded this 2-percent rate. The growth in tax revenue to finance Social Security benefits in excess of 2 percent per year can be accounted for by:

a. increases in payroll tax rates.

b. use of other taxes beside the payroll tax to pay Social Security benefits.

c. an increase in the number of workers paying Social Security taxes.

d. either (a) or (b)

e. either (a) or (c)

5. Given the structure and level of gross replacement rates and the expected future growth of labor earnings subject to the payroll tax, the tax rates used to tax payrolls were increased in the 1980s because:

a. the number of retirees per worker will increase.

b. the number of retirees per worker will decrease.

c. wages are expected to decline.

d. the size of the work force is expected to increase.

6. Which of the following is likely to increase the net federal debt as a share of GDP?

a. a federal budget surplus.

b. a federal budget deficit.

c. a recession.

d. either b or c.

7. The asset-substitution effect of the Social Security retirement system leads all workers to:

a. save more for retirement.

b. save less for retirement.

c. save absolutely nothing for retirement.

d. work more

8. Which of the following is a consequence of a growing federal budget deficit in the United States?

a. A decrease in the federal debt outstanding.

b. An increase in the federal debt outstanding.

c. A decrease in the portion share of federal government expenditures that must be allocated to interest in the future.

d. An increase in national saving.

9. The induced-retirement effect of the Social Security pension system induces workers to:

a. save less for retirement.

b. save more for retirement.

c. reduce savings for retirement to zero.

d. work more after retirement.

10. Unemployment insurance benefits are:

a. financed by payroll taxes levied on workers.

b. financed by payroll taxes levied on employers.

c. both (a) and (b)

d. financed by sales taxes.

11. Which of the following is true about the Social Security pension system in the United States?

a. Pensions received by retired workers are based entirely on their contributions to the Social Security pension trust fund and the investment return on that fund.

b. Pensions received by married retirees with dependents are greater than that received by those without dependents.

c. Gross replacement rates are inversely related to preretirement earnings.

d. both (b) and (c)

12. Which of the following can decrease tax rates necessary to pay pensions for a pay-as-you-go pensionsystem?

a. an increase in replacement rates

b. a decrease in the retirement age

c. an increase in the size of the work force

d. an increase in the number of retirees

13. Unless legislation is introduced to change the normal retirement age, people born in 1960 or later will be able to retire with full Social Security benefits at age:

a. 62.

b. 65.

c. 66.

d. 67.

14. The earnings test for retirees:

a. increases their incentive to work.

b. is applied to all retirees.

c. is applied only to retirees below normal retirement age.

d. reduces pension benefits by $1 for each $2 of earnings.

e. both (c) and (d)

15. A nation has 40 million current retirees and a work force of 100 million. Which of the following is true?

a. The replacement rate is 40 percent.

b. The replacement is 2.5.

c. The dependency ratio is 0.4.

d. The dependency ratio is 2.5.

16. Social Security tax rates can be reduced if:

a. taxable wages decline.

b. the retirement age is lowered.

c. the retirement age is raised.

d. the work force decreases in size.

17. A retiree subject to the earnings test under Social Security:

a. can earn as much as he or she chooses without losing Social Security pension benefits.

b. has his or her Social Security pension benefits reduced by one dollar for each dollar of labor earnings.

c. has his or her Social Security pension benefits reduced immediately by one dollar for each three dollars of labor earnings.

d. has his or her Social Security pension benefits reduced by one dollar for each two dollars of earnings after a certain minimum amount per year.

18. A pay-as-you-go social security retirement system is:

a. exemplified by the current U.S. social security system.

b. exemplified by the current Chilean social security system.

c. designed to have retirees set aside a contribution specifically for themselves during their earlier working life.

d. both (a) and (b).

19. Approximately, what percentage of beneficiaries of U.S. Social Security are retired workers?

a. 50%

b. 60%

c. 70%

d. 80%

20. The Social Security Act was implemented in the United States in:

a. 1927.

b. 1935.

c. 1947.

d. 1965.

ECO 450 WK 5 Midterm Exam

ECO 450 WK 5 Midterm Exam

True/False Questions

1. On average, persons in the United States devote more of their annual budgets to taxes than they do to food.

2. A universally observed function of government is the establishment of property rights.

3. The total share of GDP accounted for by government spending in the United States has declined significantly since 1980.

4. In 1929, the federal government spent more than was spent by state and local governments.

5. Since 1930, the percent of GDP devoted to government expenditures has more than tripled.

6. The costs imposed by government regulations on business firms are included in budget data on government expenditures.

7. Government consumption does not require resources to be reallocated from private to government use.

8. Since 1959, the percent of federal government expenditures devoted to transfers has increased by more than 50 percent.

9. Transfer payments, including Social Security and welfare and medical assistance, account for nearly 60 percent of federal government expenditures.

10. Interest on the federal government’s debt accounts for about 20 percent of federal government expenditure.

11. Federal grants-in-aid to state and local governments finance about 20 percent of annual spending by these governments.

12. The federal government allocates about 10 percent of its budget to Social Security.

13. State and local governments in the United States spend a bit more than one-third of their budgets on education.

14. Sales taxes account for about 22 percent of state and local government revenue in the United States.

15. The federal government obtains about half of its revenue annually from retail sales taxes.

16. State governments do not fund any part of Medicaid.

17. The social compact is an 18^th century idea by political theorists.

18. The proportion of revenue received by the federal government from payroll taxes is higher than the proportion of revenue received by state and local governments from payroll taxes.

Multiple Choice Questions

1. The real cost of government goods and services is:

a. money.

b. taxes.

c. the private goods and services foregone.

d. inflation.

2. If the economy is currently operating on a point on the production possibility curve for government goods and services versus private goods and services,

a. an annual increase in government goods and services can be obtained without any sacrifice of annual private goods and services.

b. it will be impossible to increase annual output of government goods and services.

c. a decrease in the annual output of government goods and services will have no effect on the annual output of private goods and services.

d. a decrease in the annual output of government goods and services will allow an increase in annual output of private goods and services.

3. Government goods and services are usually:

a. not rationed by prices.

b. sold in markets.

c. made available to persons according to their willingness and ability to pay.

d. financed by revenue obtained from sales.

4. Taxes:

a. are prices paid for the right to consume government goods and services.

b. are compulsory payments not directly related to the benefits received from government goods and services.

c. never affect economic incentives.

d. are used by private firms to raise revenue.

5. A mixed economy is one in which:

a. there are no markets.

b. government activity accounts for a significant proportion of the value of goods and services produced.

c. there is no government.

d. all goods and services are sold in markets.

6. Government purchases for consumption and investment:

a. are made to acquire resources necessary to produce government goods and services.

b. are designed to redistribute purchasing power among citizens.

c. have increased in importance as a percent of federal spending since 1959.

d. do not withdraw resources from private use.

7. Transfer payments by the federal government in theUnited States account for about:

a. 25 percent of federal government expenditures.

b. 10 percent of federal government expenditures.

c. 40 percent of GDP.

d. 60 percent of federal government expenditures.

8. Total annual expenditures by federal, state, and local governments in the United States in the 1990s accounted for roughly:

a. 20 percent of annual GDP.

b. 30 percent of annual GDP.

c. 50 percent of annual GDP.

d. 75 percent of annual GDP.

9. Federal government expenditures in the United States account for about:

a. 23 percent of annual GDP.

b. 33 percent of annual GDP.

c. 43 percent of annual GDP.

d. 53 percent of annual GDP.

10. About 80 percent of federal receipts are accounted for by:

a. corporate profits taxes.

b. sales taxes.

c. excise taxes.

d. payroll and personal income taxes.

11. If the economy is operating at full employment and using resources efficiently, then an increase in spending for homeland security this year will:

a. require that resources be reallocated to homeland security services without sacrificing any alternative goods and services.

b. be possible if resources are reallocated to homeland security services, but it will also mean that the output of some other goods and services will have to fall.

c. be impossible.

d. be possible only if there is an improvement in technology or more resources made available.

12. Which of the following is an example of a political institution?

a. a market

b. elections with winners determined by majority rule

c. representative government

d. both (b) and (c)

13. Nonmarket rationing means that:

a. those willing to pay can buy as much of a product as they choose.

b. prices are used to sell products.

c. goods and services are not rationed by prices.

d. willingness to pay is not a factor in determining who can enjoy a good or service.

e. both (c) and (d)

14. The U.S. economy is best characterized as a:

a. pure market economy.

b. socialist economy.

c. pure capitalistic, free-enterprise system.

d. mixed economy.

15. State and local government expenditure in the United States accounts for about:

a. 32 percent of GDP.

b. 22 percent of GDP.

c. 12 percent of GDP.

d. 7 percent of GDP.

16. Following the circular flow of a mixed economy, firms receive a flow of dollars from and send goods and services to:

a. Output Markets.

b. Input Markets.

c. Households.

d. Government.

17. Following the circular flow of a mixed economy, which entity or entities distribute resources?

a. Firms only.

b. Input Markets only.

c. Government and Households.

d. Households and Input Markets.

18. When has the U.S. experienced government expenditures in the range of 40% to 50% of GDP?

a. 2000 to 2009.

b. 1950 to 1959.

c. 1940 to 1949.

d. It has never happened.

19. In 2008, which country listed below has the highest percentage of government spending relative to GDP?

a. France.

b. Ireland.

c. Japan.

d. Canada.

20. The old-age dependency ratio is:

a. the proportion of the population that is 60 years or older over the proportion of the population that is less than 60 years of age.

b. the proportion of the population that is 65 years or older over the proportion of the population that is 15 to 64 years of age.

c. the proportion of the population that is 70 years or older over the proportion of the population that is 20 to 69 years of age.

d. the total government expenditure on programs for the elderly over the number of citizens that are 65 years or older.

True/False Questions

1. The normative approach to public finance prescribes certain actions to achieve predetermined criteria.

2. Positive economic analysis is based on underlying value judgments.

3. “The government should abolish tariffs to achieve efficiency” is a normative statement.

4. It is possible for efficiency not to be attained even if all production is carried on without waste.

5. Efficiency is attained when resources are used each year in such a way that no further net gain is possible.

ECO 450 WK 4 Quiz 3 Ch 4 & 5

ECO 450 WK 4 Quiz 3 Ch. 4 & 5

True/False Questions

1. Bread is an example of a good that is nonrival in consumption.

2. A pure public good is one for which it is easy to exclude consumers from benefits if they refuse to pay.

3. The marginal social cost of producing another unit of a pure public good will always be positive.

4. To obtain a demand curve for a pure public good, the marginal benefit of each consumer must be summed for each possible quantity produced per time period.

5. If the efficient amount of a pure public good is produced, each person consumes it up to the point at which his or her marginal benefit equals the marginal social cost of the good.

6. In a Lindahl equilibrium, each consumer of a pure public good consumes the same quantity and pays a tax share per unit of the good equal to his or her marginal benefit.

7. If the marginal social cost of a pure public good exceeds its marginal social benefit, additional units of the good can still be financed by voluntary contributions.

8. The free-rider problem is less acute in small groups than it is in large groups.

9. A congestible public good is one for which the marginal cost of allowing an additional consumer to enjoy the benefits of a given quantity is always zero.

10. Television programming is a good example of a price-excludable public good.

11. It is possible to price a pure public good and sell it by the unit.

12. The demand curve for a pure public good is obtained by adding the quantities demanded by each individual consumer at each possible price.

13. A Lindahl equilibrium usually has each participant paying the same tax share per unit of a public good even though their marginal benefit of that unit varies.

14. Internet service is an example of a price-excludable public good.

15. Clubs are a means of providing congestible public goods through markets.

16. A common way to fund a public good is through a government that raises funds through taxation.

17. Private education is an example of a price-excludable public good.

18. A congestible good has no limits in how much it can be consumed.

Multiple Choice Questions

1. A pure public good is:

a. one that can easily be sold by the unit.

b. one that is nonrival in consumption.

c. one whose benefits are not subject to exclusion.

d. both (b) and (c)

2. The marginal cost of providing a certain quantity of a pure public good to an additional consumer after it is provided to any one consumer is:

a. zero.

b. positive and increasing.

c. positive and decreasing.

d. positive and constant.

3. The nonrival property of pure public goods implies that the:

a. benefits enjoyed by existing consumers decline as more consumers enjoy a given quantity of the good.

b. benefits enjoyed by existing consumers are unaffected as more consumers enjoy a given quantity of the good.

c. good cannot be priced.

d. marginal cost of producing the good is zero.

4. The demand curve for a pure public good is:

a. a horizontal line.

b. obtained by adding the quantities individual consumers would purchase at each possible price.

c. obtained by adding the marginal benefit obtained by each consumer at each possible quantity.

d. the marginal cost curve for the pure public good.

5. The efficient output of a pure public good is achieved at the point at which:

a. the marginal benefit obtained by each consumer equals the marginal social cost of producing the good.

b. the sum of the marginal benefits of all consumers equals the marginal social cost of producing the good.

c. the marginal benefit of each consumer equals zero.

d. the marginal social cost of producing the good is zero.

e. both (c) and (d)

6. The monthly rental rate for a satellite dish antenna is $200. The maximum marginal benefit that any resident of a condominium community will obtain per month from the antenna is $50. There are 100 residents in the community, none of whom values the antenna at less than $25 per month. Assuming that the antenna is a pure public good for residents of the community,

a. each resident of the community will rent his own antenna.

b. it is inefficient for the community to rent an antenna.

c. it is efficient for the members of the community to rent an antenna for their common use.

d. it is efficient for each resident to rent his own antenna.

7. In a Lindahl equilibrium,

a. each consumer purchases a pure public good up to the point at which his or her marginal benefit equals the marginal social cost of the good.

b. each person pays a tax per unit of the pure public good equal to his or her marginal benefit.

c. the sum of the marginal benefits of all consumers equals the marginal social cost of the good.

d. both (a) and (c)

e. both (b) and (c)

8. The free-rider problem:

a. becomes more serious as the number of persons involved in voluntarily financing a pure public good decreases.

b. becomes more serious as the number of persons involved in voluntarily financing a pure public good increases.

c. is independent of the number of persons involved in a scheme to voluntarily finance a pure public good.

d. does not prevent voluntary cooperation from efficiently providing pure public goods.

9. The marginal cost of making a given quantity of a congestible public good available to more consumers is:

a. always zero.

b. positive and increasing.

c. positive and decreasing.

d. zero at first but eventually becomes positive and increasing.

10. Cable TV programming is an example of a:

a. congestible public good.

b. price-excludable public good.

c. pure public good.

d. pure private good.

11. A major distinction between pure public goods and pure private goods is that:

a. pure private goods can easily be priced and sold in markets.

b. pure public goods can easily be divided into units.

c. pure public goods can only be collectively consumed.

d. both (a) and (c)

12. The principle of nonexclusion for pure public goods means that the benefits of the good:

a. are shared.

b. can be priced.

c. cannot be withheld from consumers even if they refuse to pay.

d. are not reduced to any one consumer when a given quantity is consumed by another.

13. Which of the following is true in a Lindahl equilibrium for cooperative supply of a pure public good?

a. The sum of the tax shares per unit paid by each consumer is equal to the marginal social cost of the public good.

b. The sum of the tax shares per unit paid by each consumer is equal to the marginal social benefit of the good.

c. The sum of the tax shares per unit paid by each consumer is maximized.

d. both (a) and (b)

14. Which of the following is a good example of a congestible public good?

a. TV programming

b. a road

c. a loaf of bread

d. homeland security

15. Education is:

a. a pure public good.

b. a pure private good.

c. a good that has characteristics of both public goods and private goods.

d. not subject to the exclusion principle.

16. An example of an undesirable public good (or public “bad”) is:

a. government.

b. private trash hauling.

c. poor air quality.

d. private property.

17. Public transportation is:

a. a congestible good.

b. a pure private good.

c. a good without limits to the number of consumers who desire to use it.

d. not subject to the exclusion principle.

18. A baseball field is:

a. a pure public good.

b. a pure private good.

c. a good that has characteristics of both public goods and private goods.

d. not subject to the exclusion principle.

19. A means of creating a price-excludable public good is:

a. allowing food and beverages when entering.

b. requiring costly tickets.

c. to fund through taxation.

d. requiring identification.

20. A free concert in a public arena is:

a. a non-congestible public good.

b. a good that can be consumed by all.

c. a private good.

d. subject to consumption limits.

ECO 450 WK 4 Assignment 1 Social Security Insolvency

ECO 450 WK 4 Assignment 1 - Social Security Insolvency

Write a five to seven (5-7) page paper that answers the following:

1. Give a brief history of social security. This should be one to two (1-2) pages long.

2. Discuss the cause(s) of the anticipated insolvency.

3. Discuss action(s) the government should take to rescue the fund, why you suggested them and

how they will work.

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ECO 450 WK 4 Assignment 1 Social Security Insolvency

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ECO 450 WK 4 Assignment 1 Social Security Insolvency