An Ultimate Microeconomics Knowledge Test!

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An Ultimate Microeconomics Knowledge Test! - Quiz

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Questions and Answers
  • 1. 

    Because Buyers and Sellers neglect the external effects of their actions when deciding how much to demand or supply, the market equilibrium is not efficient. 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement suggests that buyers and sellers in a market do not consider the external effects, such as the impact on the environment or society, when making their decisions. This lack of consideration leads to an inefficient market equilibrium, where the quantity demanded and supplied do not reflect the true costs and benefits. Therefore, the statement is true as it highlights the inefficiency caused by the neglect of external effects in the market.

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  • 2. 

    In the presence of a negative externality, the market equilibrium quantity of a commodity is less than the socially optimal quantity

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Because of inefficiency due to externality, the market produces a quantity that is larger than the socially optimal quantity.

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  • 3. 

    "Do unto others as you would have them do unto you" tells people to internalize externalities 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement "Do unto others as you would have them do unto you" encourages individuals to consider the impact of their actions on others and treat them in the same way they would like to be treated. By internalizing externalities, people are taking responsibility for the consequences of their behavior and actively working towards creating a more harmonious and empathetic society. This principle promotes empathy, fairness, and respect for others.

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  • 4. 

    Corrective Tax reduces economic efficiency by distorting taxpayer behaviour

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    It Improves efficiency by eliminating a distortion of behaviour caused by not pricing a scarce resource

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  • 5. 

    By offering special tax breaks for spending on research and development, Canadian tax laws internalize the technology spillover externality 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The explanation for the given correct answer is that by offering special tax breaks for spending on research and development, Canadian tax laws incentivize companies to invest in innovation and technology development. This helps to internalize the positive effects of technology spillover, where the benefits of research and development activities extend beyond the individual firm and contribute to overall economic growth and development. By providing tax incentives, the government encourages companies to engage in research and development, leading to increased innovation, productivity, and competitiveness in the economy. Therefore, the statement is true.

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  • 6. 

    If studded snow tires cause an estimated $10 damage to the highways per vehicle each year, then the most efficient outcome for society would be to ban the use of studded snow tires

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Even if snow tires cause $10 of damage, their benefits exceed their costs-- A $10 tire tax would however allow society the chance to decide if they want to use them and if they are worth it

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  • 7. 

    Coarse Theorm states negative externalities require government action because the market fails to take into account external social costs

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The coarse theorm states the market may be able to internalize externalities when negotiating costs are not excessive.

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  • 8. 

    Patent protect internalize technology spillovers by giving the inventors property rights over their inventions

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Patents provide inventors with property rights over their inventions, which means that they have exclusive control and ownership over their creations. This protection allows inventors to profit from their inventions and prevents others from using or copying their technology without permission. By granting inventors property rights, patents incentivize innovation and encourage inventors to disclose their inventions, which in turn facilitates the diffusion of knowledge and technology spillovers. Therefore, it can be concluded that patents do protect and internalize technology spillovers by giving inventors property rights over their inventions.

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  • 9. 

    When correcting for a negative externality, command-and-control policies are preferable because they are more efficient

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Market Based Policies such as a corrective tax internalize an externality more efficiently.

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  • 10. 

    An externality is

    • A.

      The cost the producer incurs

    • B.

      The benefit the consumer recieves

    • C.

      The tariff levied against the external producers

    • D.

      The uncompensated impact of one persons actions on the well-being of a bystander

    Correct Answer
    D. The uncompensated impact of one persons actions on the well-being of a bystander
    Explanation
    An externality refers to the unintended and uncompensated impact that an individual's actions have on the well-being of a third party or bystander. In other words, it is the effect of someone's actions that affects someone else without any compensation or payment being involved. This can occur in various forms, such as pollution from a factory affecting the air quality for nearby residents or a loud party disturbing the sleep of neighbors. These externalities can have positive or negative impacts on the well-being of bystanders.

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  • 11. 

    Pulp & Paper mills produce not only paper but also dioxin, a by-product of the manufacturing process. Therefore, which one of the following can be said accurately about this market?

    • A.

      Equilibrium price and output are too high to be socially desirable

    • B.

      Equilibrium price and output are too low to be socially desirable

    • C.

      Equilibrium price is too low, and output it too high to be socially desirable

    • D.

      Equilibrium price is too high and output is too low to be socially desirable

    Correct Answer
    C. Equilibrium price is too low, and output it too high to be socially desirable
    Explanation
    Pulp & Paper mills produce dioxin, a harmful by-product. If the equilibrium price is too low, it means that the price of paper is lower than the social cost of producing it, leading to excessive production. Additionally, if the output is too high, it means that there is an overproduction of paper, which further contributes to the production of dioxin. Therefore, both the low price and high output are socially undesirable as they lead to environmental harm.

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  • 12. 

    When a positive externality is present, 

    • A.

      The private value curve (demand) is below social value curve for a product

    • B.

      The social cost curve is above the private cost curve (supply) of a product

    • C.

      The private value curve (demand) is above the social value curve of a product

    • D.

      The social cost curve is below the supply curve of a product

    Correct Answer
    A. The private value curve (demand) is below social value curve for a product
    Explanation
    When a positive externality is present, the private value curve (demand) is below the social value curve for a product. This means that individuals in the market value the product less than its overall social value. The private value curve represents the willingness to pay of consumers, while the social value curve takes into account the additional benefits generated for society as a whole. The presence of a positive externality suggests that the market is not capturing all the benefits of the product, leading to an underallocation of resources.

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  • 13. 

    Which of the following is supported by the coase theorm? 

    • A.

      The market can internalize external costs and benefits, and it can achieve efficiency if private parties can negotiate solutions to the externalities

    • B.

      Government can improve upon the operation of the market by using environmental controls

    • C.

      Correcting externalities through the market can work, only if the innocent third parties have established and enforced property rights

    Correct Answer
    A. The market can internalize external costs and benefits, and it can achieve efficiency if private parties can negotiate solutions to the externalities
    Explanation
    The Coase theorem supports the idea that the market can internalize external costs and benefits and achieve efficiency through private negotiations between parties involved in externalities. This means that if private individuals or businesses can negotiate and come to agreements on how to address externalities, such as pollution or resource depletion, the market can effectively handle these issues without government intervention. This implies that the market has the potential to self-regulate and find solutions to externalities through voluntary exchanges.

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  • 14. 

    The purchase of a new car by a resident of downtown Toronto generates

    • A.

      A tech spillover

    • B.

      A negative externality

    • C.

      A positive externality

    • D.

      An efficient market outcome

    Correct Answer
    B. A negative externality
    Explanation
    The purchase of a new car by a resident of downtown Toronto generates a negative externality. This is because the increased number of cars in the area leads to more traffic congestion, air pollution, and noise pollution, which negatively affect the quality of life for other residents. These external costs are not taken into account by the car buyer when making the purchase decision, resulting in an inefficient allocation of resources and a negative impact on the overall well-being of the community.

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  • 15. 

    What externality is a target for correction by a pigovian tax -- ie. gasoline tax

    • A.

      Construction

    • B.

      Accidents

    • C.

      Pollution

    • D.

      Pedestrian safety

    Correct Answer
    C. Pollution
    Explanation
    A pigovian tax, such as a gasoline tax, is intended to correct negative externalities. Pollution is a prime example of a negative externality that can be targeted for correction through such a tax. By imposing a tax on gasoline, the government aims to internalize the costs associated with pollution caused by vehicle emissions. This tax incentivizes individuals and businesses to reduce their gasoline consumption, leading to a decrease in pollution levels and a more sustainable environment.

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  • 16. 

    Relative to market based pollution control policies, which statement can be made about direct regulation?

    • A.

      It requires less detailed info to set pollution limits

    • B.

      It provides more of an incentive to develop better tech to clean up the beyond minimum

    • C.

      It allows polluters to pollute at no charge up to the limits set by the government

    • D.

      It makes it easier to fine-tune regulations for different situations

    Correct Answer
    C. It allows polluters to pollute at no charge up to the limits set by the government
    Explanation
    Direct regulation allows polluters to pollute at no charge up to the limits set by the government. This means that polluters are not required to pay for the pollution they emit as long as it is within the limits set by the government. This is in contrast to market-based pollution control policies, such as emissions trading or pollution taxes, where polluters are required to pay for the pollution they emit regardless of the limits set by the government.

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  • 17. 

    Which of the following would be achieved by the most efficient pollution control system?

    • A.

      Each polluter will clean up to the point where total social benefits are maximized

    • B.

      Polluters will clean up just to point where that polluters last unit of cleanup has a social value exactly equal to its social costs

    • C.

      Each polluter will meet exactly the same pollution standards as all other polluters

    • D.

      Each polluter will clean up to the maximum level that is technically feasible.

    Correct Answer
    A. Each polluter will clean up to the point where total social benefits are maximized
    Explanation
    The most efficient pollution control system would ensure that each polluter cleans up to the point where total social benefits are maximized. This means that the level of cleanup would be determined by weighing the social benefits against the costs. It is important to find a balance where the benefits of reducing pollution outweigh the costs associated with cleanup efforts. By achieving this balance, the pollution control system can effectively minimize the negative impacts of pollution on society while also considering the economic feasibility of cleanup measures.

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  • 18. 

    Heavy trucks on the trans Canada highway cause noise pollution in nearby towns. Which one of the following is an efficient policy to deal with? 

    • A.

      Rely on the "invisible hand" to take care of the problem

    • B.

      Provide subsidy to each trucking company, depending on the total amount of noise its trucks can create in the affected neighbourhoods

    • C.

      Impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighbourhoods

    • D.

      Subsidize trucking companies that install noise abatement devices

    Correct Answer
    C. Impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighbourhoods
    Explanation
    An efficient policy to deal with the noise pollution caused by heavy trucks on the trans Canada highway would be to impose a tax on each trucking company, depending on the total amount of noise its trucks create in the affected neighborhoods. This approach creates a financial incentive for trucking companies to reduce the noise generated by their vehicles. By imposing a tax, the burden of the noise pollution is shifted to the companies responsible for it, encouraging them to invest in quieter technologies or alternative routes to minimize the impact on nearby towns. This policy promotes accountability and encourages companies to take proactive measures to mitigate noise pollution.

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  • 19. 

    What is an important question to address the following question in defining an antipollution policy?

    • A.

      How do we reduce pollution to the appropriate level?

    • B.

      How do we eliminate pollution?

    • C.

      How do we learn to live with pollution, rather than worry about its growth?

    • D.

      How do we design a policy, not to be used today but instead when it is needed later in the decade?

    Correct Answer
    A. How do we reduce pollution to the appropriate level?
    Explanation
    The question of how to reduce pollution to the appropriate level is important because it acknowledges the need for a balance. It recognizes that completely eliminating pollution may not be feasible or realistic, but instead focuses on finding the appropriate level of pollution that can be sustained without causing significant harm to the environment and human health. This question also implies the need for effective policies and strategies to achieve this goal, highlighting the importance of considering various factors such as technological advancements, economic implications, and social behaviors.

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  • 20. 

    The whaling industry has hunter some species of whales nearly to extinction. Cattle, however, continue to thrive on farms throughout the world. Which one of the following is the major reason for this difference between cattle and whales? 

    • A.

      Whales are a common resource and cattle are private property

    • B.

      Whales are more valuable than cattle, and whalers are simply responding to economic incentives

    • C.

      The technology for harvesting whales has improves more quickly than the cattle

    • D.

      Whaling is an international industry, but cattle are raised locally

    Correct Answer
    A. Whales are a common resource and cattle are private property
    Explanation
    The major reason for the difference between cattle and whales is that whales are a common resource, meaning that they are not owned by any particular individual or group, whereas cattle are private property and are owned by farmers. This means that there are no regulations or restrictions on hunting whales, leading to overhunting and the near extinction of some whale species. In contrast, cattle are protected and managed by farmers, who have a vested interest in their preservation and therefore ensure their continued thriving on farms throughout the world.

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  • 21. 

    The free-rider program problem arises when a person who recieves the benefit of a good can avoid paying for it

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because the free-rider program problem occurs when someone benefits from a good or service without contributing to its cost. This often happens when individuals can enjoy the benefits of a public good, such as clean air or national defense, without directly paying for it. This creates a dilemma as it can lead to underfunding of public goods and services, as people have an incentive to avoid paying for them while still benefiting from them.

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  • 22. 

    Downloading music from the internet is not a free-rider program

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Downloading music from the internet is not excludable therefore downloaders are apart of the free-rider program

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  • 23. 

    Club Goods are free to their consumers

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Club goods are excludable-- a price must be paid to receive them.
    Club goods refer to cable televison

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  • 24. 

    A good or service that is excludable and rival in consumption is known as a private good and is most efficiently provided by the market

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A good or service that is excludable means that access to it can be restricted to only those who pay for it. Rival in consumption means that when one person consumes the good or service, it reduces the amount available for others. Private goods, which possess both of these characteristics, are most efficiently provided by the market because individuals are willing to pay for them and the market can allocate resources efficiently based on demand and supply. Therefore, the statement is true.

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  • 25. 

    The main weakness of a national defence as an example of a public good is that defence is actually provided privately in a market economy, through aerospace companies and other defence contractors. 

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    irrelevant-- nonrivalness and non-exclusion make national defence a public good, which would be true even if aerospace firm ran the military as a private company.

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  • 26. 

     ________ is the property of a good whereby a person can be prevented from using it

    Correct Answer
    Excludability
    Explanation
    Excludability refers to the property of a good where it is possible to prevent someone from using or accessing it. In other words, it means that the good can be restricted or limited to certain individuals or groups. This can be achieved through various means such as pricing, membership requirements, or physical barriers. Excludability is an important concept in economics as it determines whether a good can be effectively controlled and allocated to those who are willing to pay for it.

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  • 27. 

     ________ is a good where one persons use diminishes other peoples use

    Correct Answer
    Rival in Consumption
    Explanation
    Rival in consumption refers to a good or resource that can only be used by one person at a time, and when one person uses it, it reduces the availability or utility of that good for others. This means that the use of the good by one person directly affects the ability of others to use or benefit from it. It creates competition or rivalry among individuals for the limited quantity or access to the good.

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  • 28. 

    ________ are goods that are both excludable and rival (1 ice-cream cone)

    Correct Answer
    Private Goods
    Explanation
    Private goods are goods that are both excludable and rival. This means that access to these goods can be restricted to those who have paid for them, and consumption by one individual reduces the amount available for others. In the case of an ice-cream cone, it can be sold to a specific person and once they consume it, it cannot be consumed by another person. Therefore, an ice-cream cone is a private good.

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  • 29. 

    ________ are goods that are not excludable or rival (tornado siren)

    Correct Answer
    Public Goods
    Explanation
    Public goods are goods that are not excludable, meaning that it is not possible to prevent someone from using or benefiting from the good. Additionally, public goods are not rival, meaning that one person's use or consumption of the good does not diminish its availability or usefulness to others. The example of a tornado siren illustrates these characteristics, as it is not possible to exclude anyone from hearing the siren when it goes off, and one person's hearing of the siren does not prevent others from hearing it as well. Therefore, the correct answer is Public Goods.

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  • 30. 

    ________ are goods that are rival but not excludable (a fisherman fishing)

    Correct Answer
    Common Resources
    Explanation
    Common resources are goods that are rival but not excludable. In the context of a fisherman fishing, common resources refer to natural resources such as fish in a lake or ocean. These resources are rival because if one fisherman catches a fish, it reduces the availability of that fish for other fishermen. However, they are not excludable because it is difficult to prevent other fishermen from accessing and catching fish from the same area. Therefore, common resources can be depleted or overused if not managed properly.

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  • 31. 

    ________ are goods that are excludable but not rival (fire department)

    Correct Answer
    Club Goods
    Explanation
    Club goods are goods that are excludable but not rival, meaning that only certain individuals who pay for membership or access are able to benefit from the good, while their consumption does not diminish the availability or enjoyment of the good for others. The fire department can be considered a club good because it is funded by taxes or fees paid by residents or property owners in a specific area, granting them exclusive access to its services. However, the use of the fire department's services does not prevent others in the same area from also benefiting from its protection.

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  • 32. 

     ________ a person who receives the benefit of a good/goods but avoids paying for it

    Correct Answer
    Free Rider
    Explanation
    A free rider is a person who receives the benefit of a good or goods without paying for it. This term is often used in economics to describe individuals who take advantage of public goods or services without contributing financially. Free riders essentially "ride for free" on the efforts and contributions of others, benefiting from a resource or service without bearing the cost or responsibility.

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  • 33. 

    ________ process used to measure the estimated net social rate or return from an investment

    Correct Answer
    Cost Benefit Analysis
    Explanation
    Cost Benefit Analysis is a process used to measure the estimated net social rate or return from an investment. It involves analyzing the costs and benefits of a project or decision to determine its overall value. By comparing the costs of implementing a project with the benefits it will generate, Cost Benefit Analysis helps in making informed decisions and assessing the economic viability of an investment. It helps in evaluating whether the benefits outweigh the costs and if the investment is worth pursuing.

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  • 34. 

    Sidewalks are an example of

    • A.

      Public Good

    • B.

      Private Good

    • C.

      Common Resource

    • D.

      Club Good

    Correct Answer
    A. Public Good
    Explanation
    Sidewalks are considered a public good because they are non-excludable and non-rivalrous. They are accessible to everyone and their use by one person does not diminish their availability to others. Sidewalks are typically provided and maintained by the government for the benefit of the public as a whole, rather than being owned or controlled by individuals. They serve a broader societal purpose by promoting pedestrian safety, accessibility, and convenience, making them a classic example of a public good.

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  • 35. 

    There is more litter along the highways than there is along private driveways because

    • A.

      There is more traffic on highways

    • B.

      Nobody cares about litter along highways

    • C.

      Highways are a common resource

    • D.

      There are not enough tax dollars to clean along highways

    Correct Answer
    A. There is more traffic on highways
    Explanation
    The correct answer is that there is more traffic on highways. This explanation makes sense because highways are major transportation routes that accommodate a large volume of vehicles, including cars, trucks, and buses. With more traffic comes a higher likelihood of litter being generated, either intentionally or unintentionally, by people using the highways. Additionally, highways often have rest stops and gas stations where people may dispose of trash, further contributing to the litter along these roadways.

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  • 36. 

    Which one do you like?

    • A.

      Option 1

    • B.

      Option 2

    • C.

      Option 3

    • D.

      Option 4

    Correct Answer
    A. Option 1
    Explanation
    The given question asks for a personal preference among the four options provided. Since there is no additional information or context given, the answer cannot be objectively determined. It solely depends on the individual's personal liking or preference. Therefore, any of the options could be chosen as the correct answer based on the individual's personal choice.

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  • 37. 

    Which best describes the example of the tragedy of the commons? 

    • A.

      The free-rider program

    • B.

      The Canada day fireworks display

    • C.

      Environmental degradation

    • D.

      Municipal police service

    Correct Answer
    C. Environmental degradation
    Explanation
    The example of the tragedy of the commons refers to a situation where a shared resource, such as a common grazing area or a fishery, is overused or depleted due to individuals acting in their own self-interest. In the case of environmental degradation, it can be seen as an example of the tragedy of the commons because when individuals exploit natural resources without considering the long-term consequences, it can lead to the degradation of the environment, affecting everyone who depends on it. This concept highlights the need for collective action and regulation to prevent the tragedy of the commons from occurring.

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  • 38. 

    What is correct about public goods?

    • A.

      Cost nothing to produce

    • B.

      They can be consumed by additional people without additional cost once they are produced

    • C.

      They tend to be overconsumed from the standpoint of society

    • D.

      They are overproduced by the market

    Correct Answer
    A. Cost nothing to produce
    Explanation
    Public goods are goods or services that are non-excludable and non-rivalrous, meaning that once they are produced, they can be consumed by additional people without incurring any additional cost. This is what makes public goods unique, as they can be enjoyed by everyone in society without depleting their availability. However, it is important to note that public goods tend to be overconsumed from the standpoint of society, as individuals may try to free-ride and benefit from the good without contributing to its production or maintenance.

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  • 39. 

    Mid-level estimate of a statistical life (VSL) in Canada is $5.8 million. What is the benefit derived from the installation of a traffic light if it reduces the risk of a fatal accident by 0.5 percentage point?

    • A.

      $29,000

    • B.

      $17,500

    • C.

      $58,500

    • D.

      $15,000

    Correct Answer
    A. $29,000
    Explanation
    The benefit derived from the installation of a traffic light can be calculated by multiplying the reduction in the risk of a fatal accident (0.5 percentage point) by the mid-level estimate of a statistical life (VSL) in Canada ($5.8 million). Therefore, the benefit would be 0.005 (0.5 percentage point) multiplied by $5.8 million, which equals $29,000.

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  • 40. 

    Which one of the following features does a common good share with a private good

    • A.

      Rival in consumption

    • B.

      Excludability

    • C.

      Efficient provision by the market

    • D.

      Nonrival in consumption

    Correct Answer
    A. Rival in consumption
    Explanation
    A common good shares the feature of rival in consumption with a private good. This means that when one person consumes the good, it reduces the amount available for others to consume. In contrast, a nonrival good can be consumed by multiple individuals without diminishing its availability. Excludability refers to the ability to exclude individuals from consuming the good, while efficient provision by the market refers to the market's ability to allocate resources effectively.

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  • 41. 

    What best describes why the cost benefit analysis is difficult?

    • A.

      Analysts cannot estimate the explicit cost of a project that has not been completed

    • B.

      Analysts do not have access to info about typical cost overruns

    • C.

      Analysts do not typically observe prices when evaluating the benefits of a public good

    • D.

      Analysts are not able to consider the opportunity cost of resources

    Correct Answer
    C. Analysts do not typically observe prices when evaluating the benefits of a public good
    Explanation
    The cost benefit analysis involves comparing the costs of a project or action with its benefits. In the case of evaluating the benefits of a public good, analysts do not typically observe prices because public goods are non-excludable and non-rivalrous, meaning that once they are provided, everyone can benefit from them without reducing their availability to others. Therefore, it becomes difficult to assign a specific price to the benefits of a public good, making the cost benefit analysis challenging in this context.

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  • 42. 

    Many species of animals with commercial value are threatened with extinction. Which one of the following explains why the cow, a valuable source of food, does not face this threat? 

    • A.

      Cows are a common resource

    • B.

      Cows are privately owned

    • C.

      Vet practices have protected cows from diseases

    • D.

      Their hides fetch less money than those of other species

    Correct Answer
    B. Cows are privately owned
    Explanation
    The reason why the cow, a valuable source of food, does not face the threat of extinction is because cows are privately owned. This means that individuals or businesses have a vested interest in maintaining the cow population for their own economic benefit. As privately owned animals, cows are bred, raised, and protected by their owners, ensuring their survival and continued availability as a food source. Unlike other species that may rely on common resources or face limited protection, the private ownership of cows incentivizes their preservation and helps prevent their extinction.

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  • 43. 

    What is the simplest way to solve the problem of congested roads?

    • A.

      Build more roads

    • B.

      Offer more public transportation

    • C.

      Levy a gas tax

    • D.

      Institute tolls

    Correct Answer
    D. Institute tolls
    Explanation
    Instituting tolls is the simplest way to solve the problem of congested roads. By charging a fee for using certain roads, it discourages unnecessary or excessive traffic, thereby reducing congestion. This approach can also generate revenue that can be used for road maintenance and improvement projects. Additionally, tolls can incentivize people to carpool or use alternative modes of transportation, further alleviating traffic congestion.

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  • 44. 

    An excess of government receipts over government spending is called a budget deficit

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Excess of receipts over government spending is a budget surplus

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  • 45. 

    To judge the vertical equity of a tax system, one should consider the average tax rate of taxpayers of different level incomes. 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    To judge the vertical equity of a tax system means to assess whether the system is fair and proportionate for taxpayers with different income levels. Considering the average tax rate of taxpayers with varying income levels is an appropriate measure for determining vertical equity. By comparing the average tax rates, one can evaluate if the tax burden is distributed fairly among individuals based on their income. Therefore, the statement "True" is the correct answer as it accurately represents the importance of considering the average tax rate of taxpayers with different income levels when assessing the vertical equity of a tax system.

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  • 46. 

    Progressive Tax is something that collects more tax from a rich person rather than a poor person

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    It is only progressive if the rich person pays a higher tax rate (more $$)

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  • 47. 

    Marginal tax rate is equal to the actual taxes paid divided by income

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Marginal tax rate is addditional dollars as a percentage of additional income

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  • 48. 

    One tax system is more efficient than another if it raises the same amount of revenue at a higher cost to taxpayers and it imposes small deadweight losses and small administrative burdens

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    a tax system is efficient if raises the same amount of revenue at a lower cost to tax payers

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  • 49. 

    Replacing income tax with consumption tax encourages saving

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Replacing income tax with consumption tax encourages saving because consumption tax is typically levied on goods and services purchased, rather than on income earned. By taxing consumption instead of income, individuals are incentivized to save more of their income since they are not being taxed on it. This can lead to increased savings rates, which in turn can contribute to economic growth and stability. Additionally, consumption tax can also be designed to be progressive, meaning that higher-income individuals would pay a higher rate, further promoting savings among those who can afford it.

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  • 50. 

    Regressive tax takes a smaller fraction of income from a rich person than a poor person

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A regressive tax is a tax system where the tax rate decreases as the income increases. This means that a rich person will pay a smaller proportion of their income in taxes compared to a poor person. In other words, the tax burden falls more heavily on lower-income individuals, making it regressive. Therefore, the statement "Regressive tax takes a smaller fraction of income from a rich person than a poor person" is true.

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