Sample Questions and Answers
Which of the following is a typical private good?
a) Public park
b) Toll-collected highway system
c) Public administration
d) Urban clean water
Answer: b) Toll-collected highway system
The law of demand states that, all else being equal, as the price of a good increases, the quantity demanded:
a) Increases
b) Decreases
c) Remains constant
d) Fluctuates unpredictably
Answer: b) Decreases
Which of the following is an example of a public good?
a) A sandwich
b) National defense
c) A private swimming pool
d) A concert ticket
Answer: b) National defense
The concept of ‘market failure’ refers to:
a) A situation where the market operates efficiently
b) A situation where the market fails to allocate resources efficiently
c) A situation where the government intervenes in the market
d) A situation where all goods are public goods
Answer: b) A situation where the market fails to allocate resources efficiently
Which of the following is a characteristic of a public good?
a) Excludability
b) Rivalry
c) Non-excludability
d) Private ownership
Answer: c) Non-excludability
The term ‘opportunity cost’ refers to:
a) The cost of producing one more unit of a good
b) The cost of the next best alternative foregone
c) The total cost of production
d) The cost of labor
Answer: b) The cost of the next best alternative foregone
Which of the following is an example of a merit good?
a) Cigarettes
b) Alcohol
c) Education
d) Gambling
Answer: c) Education
The ‘invisible hand’ concept, introduced by Adam Smith, suggests that:
a) Government intervention is necessary for market efficiency
b) Markets are inherently inefficient
c) Individuals pursuing their own self-interest can lead to positive social outcomes
d) All economic decisions should be made by the government
Answer: c) Individuals pursuing their own self-interest can lead to positive social outcomes
Which of the following is a tool of fiscal policy?
a) Setting interest rates
b) Taxation
c) Printing money
d) Regulating trade
Answer: b) Taxation
The concept of ‘public choice theory’ examines:
a) How public goods are provided
b) The behavior of public officials and voters using economic principles
c) The allocation of resources in a market economy
d) The role of government in economic development
Answer: b) The behavior of public officials and voters using economic principles
Which of the following is an example of a demerit good?
a) Public parks
b) Vaccinations
c) Cigarettes
d) Public libraries
Answer: c) Cigarettes
The ‘free rider problem’ occurs when:
a) Individuals consume a good without paying for it
b) The government provides goods for free
c) Consumers pay more than the market price
d) Producers cannot sell goods at a profit
Answer: a) Individuals consume a good without paying for it
Which of the following is a characteristic of a monopoly?
a) Many sellers
b) Homogeneous products
c) Barriers to entry
d) Perfect information
Answer: c) Barriers to entry
The ‘Laffer Curve’ illustrates the relationship between:
a) Government spending and economic growth
b) Tax rates and tax revenue
c) Inflation and unemployment
d) Supply and demand
Answer: b) Tax rates and tax revenue
Which of the following is an example of a quasi-public good?
a) National defense
b) Street lighting
c) A private swimming pool
d) A concert ticket
Answer: b) Street lighting
The ‘crowding out’ effect refers to:
a) Increased government spending leading to reduced private sector investment
b) Private sector investment leading to increased government spending
c) Government regulation leading to market inefficiencies
d) Private sector innovation leading to reduced government intervention
Answer: a) Increased government spending leading to reduced private sector investment
Which of the following is a primary function of public administration?
a) Profit maximization
b) Resource allocation
c) Taxation
d) Regulation of private businesses
Answer: b) Resource allocation
The ‘Tragedy of the Commons’ refers to:
a) Overuse of a common resource leading to its depletion
b) Government failure to provide public goods
c) Underproduction of public goods
d) Inefficient allocation of resources in a market economy
Answer: a) Overuse of a common resource leading to its depletion
Which of the following is an example of a positive externality?
a) Pollution from a factory
b) Noise from a construction site
c) Education leading to a more informed society
d) Traffic congestion
Answer: c) Education leading to a more informed society
The ‘public goods problem’ arises because:
a) Public goods are non-excludable and non-rivalrous
b) Public goods are excludable and rivalrous
c) Private goods are non-excludable and non-rivalrous
d) Private goods are excludable and rivalrous
Answer: a) Public goods are non-excludable and non-rivalrous
Which of the following is a tool of monetary policy?
a) Taxation
b) Government spending
c) Setting interest rates
d) Price controls
Answer: c) Setting interest rates
The ‘Coase Theorem’ suggests that:
a) Government intervention is necessary to correct market failures
b) Private parties can negotiate solutions to externalities without government intervention
c) Externalities always lead to market inefficiencies
d) Public goods should be provided by the government
Answer: b) Private parties can negotiate solutions to externalities without government intervention
Which of the following is an example of a public-private partnership?
a) A government-owned hospital
b) A privately owned school
c) A toll road operated by a private company under government contract
d) A public library
Answer: c) A toll road operated by a private company under government contract
The Gini coefficient measures:
a) The total income of a country
b) The distribution of income within a country
c) The unemployment rate
d) The inflation rate
Answer: b) The distribution of income within a country
In the context of public administration, which of the following is considered a “budget deficit”?
a) Government expenditure is less than revenue
b) Government revenue is equal to expenditure
c) Government expenditure exceeds revenue
d) The government runs a balanced budget
Answer: c) Government expenditure exceeds revenue
The concept of ‘price elasticity of demand’ refers to:
a) The amount of goods produced by a firm
b) The responsiveness of the quantity demanded to a change in price
c) The total revenue generated from sales
d) The total cost of producing a good
Answer: b) The responsiveness of the quantity demanded to a change in price
Which of the following is an example of a government regulation designed to correct a market failure?
a) Minimum wage laws
b) Tax cuts for corporations
c) Deregulation of energy markets
d) Reduction in income taxes
Answer: a) Minimum wage laws
Which of the following best describes the ‘fiscal multiplier effect’?
a) The impact of government tax increases on consumer spending
b) The impact of government spending on total economic output
c) The effect of a central bank’s interest rate changes on inflation
d) The effect of government regulations on business investment
Answer: b) The impact of government spending on total economic output
The ‘public administration’ model of government primarily focuses on:
a) Maximizing profit in public enterprises
b) Making decisions based on political ideology
c) Efficiently delivering public services and managing public resources
d) Reducing government involvement in the economy
Answer: c) Efficiently delivering public services and managing public resources
A government budget surplus occurs when:
a) Government revenue exceeds government spending
b) Government spending exceeds government revenue
c) The government borrows money
d) The government prints more money
Answer: a) Government revenue exceeds government spending
The principle of ‘cost-benefit analysis’ is used in public administration to:
a) Calculate the taxes needed to fund government programs
b) Evaluate the effectiveness of public policies and programs
c) Determine how much money should be allocated for defense
d) Set interest rates for government loans
Answer: b) Evaluate the effectiveness of public policies and programs
The term ‘externality’ refers to:
a) A transaction between two private parties
b) The unintended side effects of an economic activity on third parties
c) The government’s budget deficit
d) A government monopoly in a market
Answer: b) The unintended side effects of an economic activity on third parties
Which of the following is an example of a ‘negative externality’?
a) The creation of a public park
b) Education leading to a more informed society
c) Air pollution from a factory
d) The development of public transportation systems
Answer: c) Air pollution from a factory
Which economic model is typically used to explain the behavior of government when dealing with public goods and market failures?
a) The supply and demand model
b) The circular flow model
c) The public choice model
d) The Keynesian model
Answer: c) The public choice model
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