ALLIED ECN150 module 4 Check Your Understanding

Question Points
1. Which of
the following is not a public good?
a. National defense
b. Patented
technological knowledge
c. General knowledge
d. The elimination of
poverty
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2. State and
local governments generate revenue from all of the following sources except:
a. sales taxes.
b. the federal
government.
c. corporate income
taxes.
d. customs duties.
3. Most
economists believe that a corporate income tax affects the stockholders of a
corporation but not its employees or customers.
a. True
b. False
4. Government
subsidized scholarships are an example of a government policy aimed at
correcting negative externalities associated with education.
a. True
b. False
5. Although
regulation and corrective taxes are both capable of reducing pollution,
regulation accomplishes this goal more efficiently.
a. True
b. False
6. Considering
the graph below, which of the following statements is correct?

a. The marginal
benefit of the positive externality is measured by P3 – P1.
b. The marginal cost
of the negative externality is measured by P3 – P2.
c. The marginal cost
of the negative externality is measured by P3 – P1.
d. The marginal cost
of the negative externality is measured by P3 – P0.
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7. Property
rights are well established for:
a. private goods.
b. public goods.
c. common resources.
d. both public goods
and common resources.
8. A
person’s marginal tax rate equals:
a. her tax
obligation divided by her average tax rate.
b. the increase in
taxes she would pay as a percentage of the rise in her income.
c. her tax
obligation divided by her income.
d. the increase in
taxes if her average tax rate were to rise by 1%.
9. If an
aluminum manufacturer does not bear the entire cost of the smoke it emits, it
will:
a. emit a lower
level of smoke than is socially efficient.
b. emit a higher
level of smoke than is socially efficient.
c. emit an
acceptable level of smoke.
d. not emit any
smoke in an attempt to avoid paying the entire cost.
10. The tax on
gasoline is an example of:
a. a consumption
tax.
b. a corrective tax.
c. an income tax.
d. a
command-and-control policy.
11. When the
government intervenes in markets with externalities, it does so in order to:
a. increase
production when negative externalities are present.
b. protect the
interests of bystanders.
c. make certain all
benefits are received by market participants.
d. reduce production
when positive externalities are present.
12. Suppose
that the cost of installing an overhead pedestrian walkway in a college town is
$150,000. The walkway is expected to reduce the risk of fatality by 1.5
percent, and the cost of a human life is estimated at $10 million. The town
should:
a. install the
walkway because the estimated benefit is twice the cost.
b. be indifferent
between installing and not installing the walkway because the estimated benefit
equals the cost.
c. not install the
walkway, since the cost is twice the estimated benefit.
d. install the
walkway, since the cost of even a single life is too great not to take action.
13. Revenues
from social insurance taxes are earmarked to pay for education and welfare.
a. True
b. False
14. Which of
the following is not an advantage of a lump-sum tax in comparison to other
types of taxes?
a. It would not
cause deadweight loss.
b. It imposes a
minimal administrative burden on taxpayers.
c. It is more
equitable.
d. It is more
efficient.
15. In the
Tragedy of the Commons, joint action among the individual citizens would be
necessary to solve their common resource problem unless the government
intervenes.
a. True
b. False
16. Since
externalities tend to keep markets from reaching a socially optimal
equilibrium, government action:
a. is always needed
because private solutions can never be attained.
b. is needed when
private solutions fail to arise.
c. will be needed
only to correct for positive externalities.
d. will be needed
only to correct for negative externalities.
17. Vertical
equity refers to a tax system in which individuals with similar incomes pay
similar taxes.
a. True
b. False
18. If Damian
has $33,000 in taxable income, his tax liability will be:

a. $4,531.
b. $4,678.
c. $4,950.
d. $8,269.
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19. A good
that is excludable is one that someone can be prevented from using if she did
not pay for it.
a. True
b. False
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20. Suppose
that the government imposes a $2 tax on delights, causing the price to increase
from $4.00 to $6.00. Total consumer surplus will fall from:

a. $6 to $3.
b. $7 to $4.
c. $6 to $2.
d. $5 to $3.