Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: (a)

French fries, (b) airport screening, (c) court systems, (d) mail delivery, and (e) medical care.

State why you answered as you did in each case.




Use the circular flow diagram to show how each of the following government actions simultaneously affects the allocation of resources and the distribution of income:


What do economists mean when they say government purchases are “exhaustive” expenditures

whereas government transfer payments are “nonexhaustive” expenditures? Cite an example of a government purchase and a government transfer payment.



What is the most important source of revenue and the major type of expenditure at the Federal

level? At the state level? At the local level?






Suppose in Fiscalville there is no tax on the first $10,000 of income, but a 20 percent tax

on earnings between $10,000-20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 40 percent. If your income is $50,000, how much in taxes will you pay? Determine your marginal and average tax rates. Is it a progressive tax? Explain.






What do economists mean when they refer to Social Security as a pay-as-you-go

plan? What is the Social Security trust fund? What is the nature of the long-run fiscal imbalance

in the Social Security retirement system? What are the broad options for addressing this


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