Social services primarily consist of

Select one:

a.welfare programs for low-income people.

b.a government health plan for the poor.

c.pensions collected for the infirm.

d.the same services as Old Age Security.

What does an efficient tax system do?

Select one:

a.It imposes small marginal rates and deadweight losses.

b.It imposes small marginal rates and transfers of money.

c.It imposes small deadweight losses and administrative burdens.

d.It imposes small administrative burdens and transfers of money.

Four friends who love to ski decide to pool their financial resources and share (equally) the cost of a one-week time-share condominium in Banff, Alberta. Unfortunately, the condominium does not come with maid service. Everyone values clean dishes, but unwashed dishes pile up in the sink. An economist would best explain this as

Select one:

a.household behaviour of the invisible hand.

b.a common resource problem.

c.a problem similar to cost-benefit analysis for public projects.

d.a negative externality for whoever does the dishes.

What happens as government debt increases?

Select one:

a.Evidence suggests that spending on social insurance programs will be reduced.

b.A trade-off with government deficits is inevitable.

c.Government must spend a larger share of its revenue on interest payments.

d.Taxes must rise to cover the deficit.

In the absence of externalities, what can be said about the invisible hand of the marketplace?

Select one:

a.It is unable to resolve inherent disagreements between parties in the market system.

b.It increases the transaction costs, so reaching an efficient outcome is especially difficult.

c.It leads to a market outcome that maximizes total benefit to society.

d.It induces people to act in a manner inconsistent with self-interest.

When are externalities present in a market?

Select one:

a.whenever private costs differ from social costs

b.whenever a shortage exists

c.whenever the seller is not making a profit

d.whenever the price is higher than equilibrium price

Some goods can be either common resources or public goods, depending on

Select one:

a.how policymakers deal with the good.

b.whether the good is rival in consumption.

c.the marginal cost of the good.

d.whether the good is excludable.

Once it becomes obvious that a common resource is being overused, what happens?

Select one:

a.Market forces cause the use of the resource to shift to a sustainable level.

b.The good becomes a club good.

c.Society voluntarily limits its use of the good.

d.It continues to be overused because individuals have no incentive to reduce their use of the good.

Vertical equity and horizontal equity are associated with

Select one:

a.taxes that have no deadweight losses.

b.the ability-to-pay principle of taxation.

c.the benefits principle of taxation.

d.falling marginal tax rates.

John faces a progressive tax structure that has the following marginal tax rates: 0% on the first $10,000, 10% on the next $10,000, 15% on the next $10,000, 25% on the next $10,000, and 40% on all additional income. If John earns $60,000 per year, what would be his tax liability?

Select one:

a.$8000

b.$9000

c.$13,000

d.$25,000

What will happen when negative externalities are present in a market?

Select one:

a.Social costs will be greater than private costs.

b.Government will regulate the externalities in the market.

c.The market will not be able to reach an equilibrium situation.

d.Private costs will be greater than social costs.

How do policymakers consider goals of efficiency and equity in tax policy?

Select one:

a.necessary for application of the ability-to-pay principle

b.complementary in most countries

c.more easily sustained when tax laws are complex

d.often in conflict with each other

Why do private markets fail to account for externalities?

Select one:

a.Decision makers in the market fail to take into account the external effects of their behaviour.

b.Sellers include costs associated with externalities in the price of their products.

c.The effect of externalities are difficult to measure in private markets.

d.The government can easily correct any adverse effect that externalities may cause on the market.

Which statement is true for tax evasion?

Select one:

a.It is recommended by the Canadian Accounting Association.

b.It is illegal.

c.It is the same as tax avoidance.

d.It is facilitated by legal deductions to taxable income.

McKenna earns income of $80,000 per year. Her average tax rate is 40%. McKenna paid $5500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Select one:

a.15%

b.32%

c.40%

d.53%

Why is national defence provided by the government?

Select one:

a.If the good were produced in private markets, most likely too much of the good would be produced.

b.Free riders make it difficult for private markets to supply the socially optimal quantity.

c.Products provided by the government can be produced more efficiently.

d.It is impossible for private markets to produce public goods.

Why does the government provide public goods?

Select one:

a.Private markets would charge too high a price for the good.

b.Private markets would not produce the efficient quantity of the good.

c.Private markets produce public goods less efficiently than the government.

d.Private markets would not produce any of the good.

What is a free rider?

Select one:

a.a person who will only purchase a product on sale

b.a person who can produce a good at no cost

c.a person who takes advantage of tax loopholes to lower his taxes

d.a person who receives the benefit of a good but avoids paying for it

Goods that are rival in consumption include

Select one:

a.both natural monopolies and public goods.

b.both common resources and private goods.

c.both private goods and club goods.

d.both public goods and common resources.

When the government intervenes in markets with externalities, it does so

Select one:

a.to increase production when negative externalities are present.

b.to better coordinate the actions of buyers and sellers.

c.to make sure all benefits are received by market participants.

d.to protect the interests of bystanders.

Internalizing an externality refers to

Select one:

a.making sure that all transactions benefit only buyers and sellers.

b.making sure government does not disrupt the internal workings of the market.

c.making buyers and sellers take into account the external effects of their actions.

d.making buyers pay the full price for the products they purchase.

Assume that your roommate, Linda, is very messy. Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you. What would the Coase theorem suggest would be an efficient solution for you?

Select one:

a.to pay your roommate $90 to clean up after herself

b.to pay your roommate at least $100 but no more than $200 to clean up after herself

c.to pay your roommate at least $201 to clean up after herself

d.to charge your roommate at least $100 to have you clean up after her

To ensure the market reaches the social optimum in the presence of a technology spillover, how should the government subsidize producers?

Select one:

a.by an amount equal to the value of the technology spillover

b.by use of a corrective tax

c.by helping those companies that are adversely affected by the new technology

d.by transferring income to the low-income portion of the population

What is an externality?

Select one:

a.the impact of a person's actions on that person's well-being

b.the impact of a person's actions on the well-being of a bystander

c.the impact of society's decisions on the well-being of society

d.the impact of society's decisions on the well-being of an individual in that society

A market that experiences a positive externality will also experience

Select one:

a.a smaller market output and a higher market price than is optimal.

b.a greater market output and a higher market price than is optimal.

c.a smaller market output and a lower market price than is optimal.

d.a greater market output and a lower market price than is optimal.

The benefits principle is used to justify

Select one:

a.taxes on cigarettes and alcoholic beverages.

b.property taxes.

c.personal income taxes.

d.the gasoline tax.

Which method could Banff National Park use to correct for overcrowding?

Select one:

a.Increase entrance fees, and ensure that they keep pace with inflation each year.

b.The park takes full advantage of the free market to correct for overcrowding.

c.If Banff received additional support from the federal government, the overuse problem would be eliminated.

d.When the park gets too crowded, they should turn away visitors.

How do corrective taxes differ from most taxes?

Select one:

a.Corrective taxes cannot be divided between the buyer and seller.

b.Corrective taxes enhance economic efficiency.

c.Corrective taxes cause deadweight loss.

d.Corrective taxes do not raise revenue from the government.

What would be an optimal tax on pollution?

Select one:

a.one for which a benevolent social planner is able to maximize production

b.one for which producers choose not to produce any pollution

c.one for which producers internalize the cost of the pollution

d.one for which the value to consumers at market equilibrium exceeds the cost of production (including tax)