Public Finance in Canada 5th Edition by Harvey S Rosen – Test Bank

Complete Test Bank With Answers

Sample Questions Posted Below

Exam

Name___________________________________

MULTIPLE CHOICE. 1) A private good is A) nonrival and nonexcludable in consumption.

B) rival and excludable in consumption.

C) rival and nonexcludable in consumption.

D) nonrival and excludable in consumption.

Answer: B

Choose the one alternative that best completes the statement or answers the question.

2) Market mechanisms are unlikely to provide A) prices. C) public goods efficiently. Answer: C

B) supply and demand.

D) none of these answers is correct.

3) A pure public good is A) rival and excludable in consumption.

B) nonrival and excludable in consumption.

C) nonrival and nonexcludable in consumption.

D) rival and nonexcludable in consumption.

Answer: C

4) Commodity egalitarianism refers to commodities that A) are important for most consumers.

B) are good ideas but never produced.

C) are too dangerous for most consumers.

D) should be made available to all consumers.

Answer: D

5) Charging individual prices that are based on consumers’ willingness to pay is A) second tier pricing. B) price discrimination.

C) will pricing. D) government price supports.

Answer: B

6) Equilibrium for public goods is characterized by A) MC = MB.

B) SMB = SMB.

C) MRS1 + MRS2 + MRS3 + … + MRSn = MRT.

D) SMC = MRT.

Answer: C

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17) Summing demand curves horizontally sends market ________ to individuals, while

summing vertically sends market ________ to individuals.

A) price; price B) quantity; price

C) quantity; quantity D) price; quantity

Answer: D

7)

8) Public goods can be A) provided publicly.

B) subject to free rider problems.

C) provided privately.

D) all of these answer options are correct.

Answer: D

8)

9) A ________ is a person who wants to enjoy the benefits of a public good without

contributing his or her marginal benefit to the cost of financing the amount made.

A) price maker B) price optimizer

C) free rider D) politician

Answer: C

9)

10) Impure public goods 10)

A) are nonexcludable in consumption.

B) are nonrival in consumption.

C) are the same as pure public goods.

D) are to some extent rival or excludable in consumption.

Answer: D

11) An example of a private good is A) national defence. C) a lighthouse. Answer: D

11)

B) an express toll route.

D) an ice cream cone.

12) Which of the following is a public good? A) Schools B) Toll highways

C) Thrift stores D) Cable television

Answer: A

12)

213) From the figures below, the market price of rockets is 13)

A) 6. B) 4. C) 20. D) 10.

Answer: D

14) When asked to reveal their true preferences people A) sometimes tell the truth.

B) generally don’t know what preferences are.

C) never tell the truth.

D) always tell the truth.

Answer: A

14)

15) The MRT is 15)

A) the maximum rate of transformation.

B) the marginal rate of taxation.

C) the minimal rate of time.

D) none of these answer options is correct.

Answer: D

16) Equilibrium in the market is where supply is equal to demand. A) True B) False C) Uncertain

Answer: A

16)

17) The free rider problem causes less than optimal production of a public good. A) True B) False C) Uncertain

Answer: A

17)

3ESSAY. 18) Public goods are always provided by the public sector. A) True B) False C) Uncertain

Answer: B

19) Most goods that are nonexcludable are pure public goods. A) True B) False C) Uncertain

Answer: C

20) Vertical summation of demand curves yields results equivalent to those of horizontal

summation.

Answer: B

A) True B) False C) Uncertain

21) Private goods are always provided by the private sector. A) True B) False C) Uncertain

Answer: B

22) Increasing distortionary taxes to finance an additional unit of the public good further

distorts the allocation of resources in the economy but increases economic efficiency.

A) True B) False C) Uncertain

Answer: B

23) Recent evidence supports the view that privately-owned firms exhibit lower productivity

than government-owned firms.

A) True B) False C) Uncertain

Answer: B

24) A pure public good can become an impure public good. A) True B) False C) Uncertain

Answer: A

25) National defence is an example of a good that is both nonrival and nonexcludable. A) True B) False C) Uncertain

Answer: A

26) Choosing between public or private provision of a good always leads to market

efficiencies.

Answer: C

A) True B) False C) Uncertain

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Write your answer in the space provided or on a separate sheet of paper.

27) Suppose there are two individuals with identical demand curves characterized by the equation P = 2

– Q. What is market demand if these demand curves are added horizontally? Vertically?

Answer: Horizontal adding yields Q = 4 – 2P. Vertical adding yields Q = 2 – (1/2)P.

428) Suppose that there are only two fishermen, Zach and Jacob, who fish along a certain coast. They

would each benefit if a lighthouse were built along the coast where they fish. The marginal cost of

building each additional lighthouse is $150. The marginal benefit to Zach of each additional

lighthouse is 90 – Q, and the marginal benefit to Jacob is 40 – Q, where Q equals the number of

lighthouses.

What is the efficient number of lighthouses?

Answer: The cost is too high for any number of lighthouses to be built.

29) Suppose you are given the following demand curves: Q = 32 – P and Q = 16 – (P/2). Add these two

demand curves vertically and find the market demand curve.

Answer: The demand curve has two portions. When Q is between 0 and 16, the demand curve is Q =

(64/3) – (P/3). When Q is between 16 and 32, the demand curve is Q = 32 – P.

30) Suppose there is a public good that has market supply characterized by the equation X = (P/3) –

(32/3). Suppose further that market demand for this good can be characterized by the equation X =

25 – P. Find the equilibrium quantity of the public good that will be supplied.

Answer: The two curves never intersect at a positive quantity; therefore, the amount of the public good

provided will be zero.

31) There are not many examples of pure public goods. Why?

Answer: Consumption of an impure public good is to some extent rival or excludable. A commodity

can satisfy one part of the definition of a public good but not the other. A commodity can

switch from nonexcludable to excludable (e.g. lanes that can only be used by buses or taxis are

certain times of the day) or from nonrival to rival (e.g. congestion on roads during certain

times of the day).

32) Discuss and contrast the advantages and disadvantages of public highways versus toll roads.

Answer: If only toll roads existed, there would be less uniformity in roads and no assurances about

quality. Toll roads might exist in key areas if no one decides to build one or the costs are

prohibitive.

33) Some people do not engage in free riding, even when there is no cost or chance or reprisal. Discuss

why?

Answer: Answers will vary but many people find it immoral to benefit without fully contributing.

Others find the process of engagement fulfilling as they strive to find optimal outcomes for

public goods.

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