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Advanced Business Economics
Advanced Business Economics MCQs
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Forms of government intervention do not include:
leaving production up to the private sector but relying on regulation to achieve program goals.
producing and distributing goods or services publicly to meet program goals.
levying taxes or providing subsidies to private producers or consumers to achieve program goals.
requiring all individuals to register for eligibility so that goods and services are distributed to only those deserving of benefits according to program goals.
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The rapid growth in government expenditures in the last 45 years is largely accounted for by:
defense spending.
agricultural subsidies.
public assistance.
social insurance.
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Which of the following contributes to the unavoidable trade-off between denying aid to some deserving individuals and aiding some undeserving individu...
It is costly to identify deserving individuals.
Undeserving individuals have an incentive to try to appear deserving.
The "loose reins" principle says that every perfectly designed program will expand, as time passes, to cover too many people.
Both a and b contribute to the trade-off.
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Constant dollars
represent a conservative monetary policy.
are an accounting transformation to remove the effects of inflation from comparisons over time.
reflect the changing value of the dollar over time under a constant rate of inflation.
represent a liberal monetary policy.
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Increasing returns to scale or declining average cost cause market failure because:
one firm makes infinite profit.
there is no such thing as a big enough firm.
there is a tendency for such markets to become monopolized.
marginal rates of transformation tend toward zero.
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The market failure referred to as incomplete markets is the failure of:
all people to demand all goods.
some goods to be demanded because their competitive prices are too high.
some goods to be provided because their prices are too low.
some goods to be provided even though benefits would exceed costs.
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A strictly positive approach to economic analysis would:
describe the likely consequences of government policy.
accept only social welfare functions that weighed everyone equally.
fail to capture the effects of providing merit goods.
overlook negative externalities.
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The only type of externality that causes a market failure is a negative externality.
True.
False.
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The free rider problem refers to people who:
will only consume a public good if it is free.
for efficiency's sake, should be allowed to consume public goods even if they do not pay.
will not voluntarily pay for a public good even though they would benefit from its provision.
are not willing to pay for a public good because they lack information about its potential benefits.
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If a private good is publicly provided at a zero price, it:
becomes a public good because everyone can consume as much as desired and no one is excluded.
will be over-consumed as marginal benefits are driven to zero.
will be under-consumed because marginal benefits are zero.
will be consumed to the point where marginal benefits equal marginal costs of production.
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Which of the following is not a rationing device for publicly provided private goods?
Queuing
Setting a positive price
Uniform provision
Free riding
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A feasibility curve:
takes into account inefficient government production techniques.
depends on how the government raises the revenue for financing public production.
depends on how the government decides to ration the publicly provided good.
represents preferences rather than technological relationships.
?
The Coase theorem implies all but which one of the following?
Sometimes externalities can be internalized by assigning property rights to the offending party.
Sometimes externalities can be internalized by assigning property rights to the offended party.
Externalities can be internalized by assigning property rights to either party.
Private parties can sometimes deal with externalities through bribes and penalties, achieving efficiency without government intervention.
?
An optimal corrective tax on the output from an externality-producing activity will:
eliminate the externality.
alter private marginal costs to equal social marginal costs, at least at one output level.
increase the output of the good and reduce the output of the "bad" (the externality).
be negative for negative externalities and positive for positive externalities.
?
When the presence of an externality implies too little production is taking place, we are dealing with:
an efficient allocation of resources.
a positive externality from production.
a negative externality from production.
none of the above.
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The phenomenon of diminishing marginal utility refers to the fact that
people do not like additional units of a good.
it is unfair to give more of a good to a person with high marginal utility.
the extra gain from having 1 more unit of a good becomes smaller as a person consumes more of any good.
efficiency is decreased if people consume more of a good.
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Which is not true of Rawlsian social welfare functions?
They have right-angled social indifference curves.
They are derived from a concept of justice.
They treat everyone equally.
They focus attention on the least advantaged individual.
?
Which is not measured by consumer surplus?
The difference between what an individual is willing to pay and what she has to pay for a good.
How much extra of a good an individual consumes when the price falls.
The area under the (compensated) demand curve.
The value of a government project.
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A tax that has played a decreasingly important role in raising federal revenues since the 1920s is the
payroll tax.
corporation income tax.
personal income tax.
property tax.
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In 2010, public expenditures in the United States were roughly:
10 percent of GDP.
one-quarter of GDP.
40 percent of GDP.
one-half of GDP.
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It is often difficult to agree on the desirability of proposed government programs because of different perspectives regarding:
The relative importance of equity versus efficiency considerations.
The nature of equity-efficiency trade-offs.
What is equitable.
All of the above.
?
The certainty equivalent of an uncertain future cost is:
equal to its expected value.
greater than its expected value.
less than its expected value.
generally different from its expected value, but the direction of the difference depends on whether the risks are potentially good or bad.
?
A social rate of discount should measure
the rate at which the government can borrow.
the rate at which taxpayers can borrow.
a weighted average of the rates at which public and private borrowing takes place.
none of the above
?
Contingent valuation is used to estimate the
perceived valuation or existence value of environmental goods.
cost of the closest alternative program for achieving the public goal.
value of economic losses in an environmental disaster.
benefits derived from a program when the second-best procedure is used.
?
A risk premium measures the:
extra rate of return a risky project must earn to make its riskiness acceptable.
increase in the discount rate necessary for discounting risky costs and benefits over time.
level of extra benefits a risky project must earn to make its riskiness acceptable.
excess of expected benefits over their certainty equivalent.
?
In a competitive market, consider supply and demand elasticities at the point at which supply equals demand (you may think of these curves as linear a...
the one with the larger elasticity.
the one with the smaller elasticity.
the one that statutorily bears the tax.
impossible to tell just from elasticities.
?
The difference between partial equilibrium analysis and general equilibrium analysis is that:
partial equilibrium analysis ignores adjustments in markets other than the one in which the tax is imposed, whereas general equilibrium analysis looks at many markets.
general equilibrium analysis includes intergenerational redistribution and partial equilibrium analysis looks only at the effects on one generation.
general equilibrium analysis allows both prices and quantities to adjust and partial equilibrium analysis looks only at prices.
partial equilibrium analysis is short-run analysis and general equilibrium analysis takes into account long-run adjustments.
?
The effect of a lump-sum tax on a budget constraint is:
none; a lump sum tax will not move the budget constraint.
to make it flatter.
to make it steeper.
to cause a parallel shift.
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A lump-sum tax causes:
income and substitution effects that reinforce each other.
income and substitution effects that offset each other.
no income effect.
no substitution effect.
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In a world with freely flowing capital, a small open economy:
is influential in determining the market interest rate.
will become a closed economy if interest rates rise.
has firms that face an interest rate determined internationally.
lacks economies of scale necessary for borrowing in foreign markets.
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By historical standards, the federal deficit since the onset of the Great Recession in 2007-2008 has been:
large in nominal terms.
large in real terms.
large as a percentage of GDP.
all of the above.
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Entitlement programs are:
programs like defense, science, and space.
a way to pay down the debt.
programs where the government sets the expenditure levels on an annual basis.
programs where the government defines eligibility criteria for certain benefits.
?
Reducing the deficit results in all of the following, except:
promoting economic growth.
higher interest rates.
better future living standards.
stimulated investment.
