1. Which of the following is legally permitted to use coercive force to modify the actions of adults?
a. banks
b. corporations
c. governments
d. all of the above

2. As methods of economic organization, the market and the public sector are similar in which of the following ways?
a. Income is distributed equally in and by both sectors.
b. In both sectors, economic activity is undertaken only when it will result in social gain.
c. In both sectors, economic exchange is completely voluntary.
d. Someone must cover the cost associated with the provision of scarce goods in both sectors.

3. Which one of the following is a major difference between market and collective economic organization?
a. Individuals are motivated by their personal interests when they make market decisions, but they will be motivated primarily by the public interests when they make collective choices.
b. Individuals have a strong incentive to acquire information when making private consumption decisions, but voters have little incentive to invest in acquiring information when making political choices.
c. Competitive behavior is present when decisions are made in the marketplace, but competition is absent when choices are made collectively.
d. For market choices, there will be a one-to-one link between individual consumption and individual payment for a good; this link is also present when choices are made collectively.

4. The cost of government activities equals
a. the income transferred to the government in the form of taxation.
b. the income that could have been earned by government employees if they had worked in the private sector.
c. the difference between government expenditures and tax revenues.
d. the sum of the opportunity cost of resources used by the government plus the cost of tax compliance and the excess burden of taxation.

5. Economic efficiency requires
a. individuals produce at their maximum level.
b. only long-lasting, high-quality products be produced.
c. income be distributed equally among consumer units.
d. all economic activity generating more benefits than costs to individuals in the economy be undertaken.

6. Which of the following correctly describes an external benefit resulting from an individual's purchase of a winter flu shot?
a. The flu shot is cheaper than the cost of treatment when you get the flu.
b. The income of doctors increases when you get the flu shot.
c. The flu shot reduces the likelihood of others catching the flu.
d. The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

7. Which of the following is the best example of a public good?
a. a national system of health care
b. the Disney World amusement park
c. a flood control project
d. telephone service

8. From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often
a. lead to an excessive supply of the product by firms in the industry.
b. lead to product prices that exceed the opportunity cost of production.
c. lead to product prices that are too low.
d. cause private firms to use inefficient production methods.

9. Which of the following is the best example of an action that imposes an external cost?
a. wear and tear on one's car as the result of speeding
b. an increase in one's water bill as the result of watering the yard
c. deterioration in the environmental quality of a campground as a result of garbage left behind by careless campers
d. a rose garden on your property that improves the view available to your neighbors

10. Producers will be most likely to help consumers acquire accurate information at a low cost when
a. advertising expenses are considered a fixed cost for tax purposes.
b. the producers incur external costs by providing such information to consumers.
c. the good produced is a repeat-buy item and sales depend on the satisfaction of customers.
d. the product sold is a near public good.