Determine if the following statements are true or false

1) Cash deficit equals current deficit if and only if interest payment equals positive value.
(False)

2) Despite that primary deficit couldn’t be more than cash deficit; cash deficit might be more than overall
deficit. (True)

3) Cash deficit equals overall deficit if and only if net acquisition of non-financial asset equals zero. (False)

4) Cash deficit is less than overall deficit when net acquisition of financial assets equals positive value;
while cash deficit is greater than primary deficit when interest payments equal zero.
(False)

5) Total borrowing might be equal sum of overall deficit (in absolute figure) and debt repayments. (True)

6) If interest payment equals zero, and capital investment equals 10 billion, and capital revenues to finance
investment equals 5 billion that means primary deficit is less than current (operation) deficit. (True)

7) Primary deficit might be more than cash deficit. However, cash deficit couldn’t be more than overall
deficit. (False).

8) Cash deficit is greater than overall deficit when net acquisition of financial assets equals negative value;
while cash deficit is greater than primary deficit when interest payments equal positive value. (True)

Choose the right answer

1) If cash deficit equals 50 billion and total revenues equals 100 billion and primary deficit equals 25 billion
that means total expenses equals ….. billion.
A) 150 B) 100 C) 200

2) If total revenues equal total expenses, and capital investment more than capital revenues, and interest
payment equals 25 billion and net acquisition of financial assets equals (50) billion and debt repayments
equal 50 billion and privatization proceeds equals zero that means total borrowing equals …… billion.
A) 100 B) 50 C) zero

3) If cash deficit equals 50 billion and total revenues equal 100 billion and primary deficit equals 25 billion
that means interest payments equal …. billion.
A) 25 B) 75 C) zero

4) If net acquisition of financial assets equals (5) billion, and cash deficit equals 55 billion, and privatization
revenues equals 5 billion, and debt repayments equal 20 billion, therefore, net borrowing equals ….. billion.
A) 65 B) 45 C) 50

5) If total revenues equal 200 billion dollars and total expenses equal 100 billion dollars, and debt repayment
equals 125 billion dollars, and net acquisition of financial assets equals (25), and privatization proceeds
equal zero that means total borrowing equals …. billion dollars.
A) zero B) 150 C) 250

6) If net acquisition of financial assets equals 5 billion, and cash deficit equals 55 billion, and privatization
revenues equals zero billion, and debt repayments equal 20 billion. That means total borrowing equals …..
billion.
A) 60 B) 65 C) 80
7) If the government is targeting to lower the debt-to-GDP ratio from 90% to 70%, given that the real
interest rate reaches 3% with a real growth rate of 5%, then the government must achieve a:
a. Primary Surplus of 18% of GDP
b. Primary Surplus of 10% of GDP
c. Primary Deficit of 18% of GDP

8) The government is targeting to keep the debt-to-GDP ratio constant at 80%, what is the required growth
rate of real GDP given that the real interest rate reaches 6% with a primary deficit of 5% of GDP?
a. 13%
b. 9%
c. 16%

1. Suppose that demand is perfectly inelastic. A tax imposed by the government on a certain commodity will
result in:
a. The burden of the tax being equally shared between the producer and the consumer.
b. The consumer bearing all the tax burden.
c. The producer bearing all the tax burden.
d. There is no enough information to tell.

2. Suppose that the marginal external cost (MEC) associated with cement production is estimated at L.E10
per ton per year. With the competitive market equilibrium for cement production being 10 million tons per
year, a corrective tax on cement production:
a. will collect L.E 100 million annually.
b. will collect more than L.E 100 million annually.
c. will collect less than L.E 100 million annually.
d. will reduce annual damages to those other than buyers and sellers of cement to zero.
e. both (a) and (d)

3. Government goods and services are usually:

a. not rationed by prices. b. sold in markets.
c. made available to persons according to their willingness and ability to pay.
d. financed by revenues obtained from sales.

4. A mixed economy is one in which:

a. there are no markets.
b. government activity accounts for a significant proportion of the value of goods and services produced.
c. there is no government.
d. all goods and services are sold in markets.

5. The old-age dependency ratio is:

a. the proportion of the population that is 60 years or older over the proportion of the population that is less
than 60 years of age.
b. the proportion of the population that is 65 years or older over the proportion of the population that is 15 to
64 years of age.
c. the proportion of the population that is 70 years or older over the proportion of the population that is 20 to
69 years of age.
d. the total government expenditure on programs for the elderly over the number of citizens that are 65 years
or older.

6. Positive economics:
a. makes recommendations designed to achieve certain goals.
b. establishes cause-and-effect relationships between economic variables.
c. is based on value judgments.
d. can never be used to make predictions.
7. If the marginal social cost of mobile phones exceeds the marginal social benefit at the current weekly
output, this means that:
a. the marginal net benefit of mobile phones is positive.
b. the output of mobile phones is efficient.
c. a reduction in weekly output of mobile phones is necessary to achieve efficiency.
d. an increase in weekly output of mobile phones is necessary to achieve efficiency.

8. Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:
a. the marginal social benefit of diamonds exceeds its marginal social cost.
b. the marginal social cost of diamonds exceeds its marginal social benefit.
c. the price of diamonds equals its marginal social cost.
d. the price of diamonds exceeds its marginal social benefit.

9. High old-age dependency ratios cause:

a. A Fiscal burden on the government.
b. A great burden on the labor force.
c. Increase in social security pensions and health care expenditures.
d. a, b and c.
e. Only a and b.

10. If a negative externality prevails in a competitive market for cigarettes, then:

a. more than the efficient amount of cigarettes will be consumed in a competitive equilibrium.
b. less than the efficient amount of cigarettes will be consumed in a competitive equilibrium.
c. the marginal social cost of cigarettes will exceed its marginal social benefit in a competitive equilibrium.
d. both (a) and (c)
e. both (b) and ©

1. Total Social Benefit (TSB) is an increasing function with an increasing rate while Total Social Cost (TSC)
is an increasing function with a decreasing rate. False

2. Assuming no externalities and a competitive environment, the marginal private cost will be equal to the
marginal social cost. True

3. If the marginal social benefit of fire alarms exceeds their marginal social cost, then additional net gains
are possible from an increased annual fire alarm production. True

4. Government regulations that require airlines to serve routes for which the maximum price that passengers
are willing to pay for a trip fall short of the minimum price that the airlines are willing to accept are likely to
cause gains in efficiency. False

5. A minimum wage policy will result in the creation of unemployment. True

6. For a good with a positive externality, internalization of the MEB is done through the use of a corrective
subsidy. True

7. When the price of cameras increases because more people started to like photography, this is called a
negative externality. False

8. Externalities are extra costs/benefits of market transactions to third parties that are reflected in prices.
False

9. USA is an example of a pure market economy. False

10. When TSB = TSC, efficiency is guaranteed. False

1. Government provision of public goods does not require resources to be reallocated from private to government use.
(False)

2. The marginal cost of making a given quantity of a congestible public good available to more consumers is always zero.
(False)

3. The demand curve for a public good is a horizontal line. (False)

4. The marginal cost of providing a certain quantity of a pure public good to an additional consumer, after it is already
being provided to any one consumer, is zero. (True)

5. To obtain a demand curve for a pure private good, the marginal benefit of each consumer must be summed vertically for
each possible quantity produced. (False)

6. A voter’s most-preferred political outcome will change if that person’s tax share per unit of the public good is changed,
while keeping other things equal. (True)

Look at the next figure, which shows the Political Equilibrium under Majority Rule with Equal
Tax Shares, and answer questions 7, 8, 9, and 10 that follow:

7. From the above figure, voter B's most-preferred political outcome in terms of the number of bridges to be
built is 3. (False)

8. From the above figure, the political equilibrium will result in 4 bridges being built. (True)

9. For the median voter (voter M), the political externality is positive. (False)

10. A pecuniary externality will result from the gap between voter B's most preferred political outcome and
the political equilibrium. (False)
1. Which of the following is true in a Lindahl equilibrium for cooperative supply of a pure public good:
a. The sum of the voluntary shares per unit paid by each consumer is equal to the marginal social cost of
the public good.
b. The sum of the voluntary shares per unit paid by each consumer is equal to the marginal social benefit
of the good.
c. The voluntary shares per unit paid by each consumer is the same.
d. both (a) and (b).
e. both (b) and (c).

2. The free-rider problem,

a. becomes highly probable as the number of persons involved in voluntarily financing a pure public good
decreases.
b. becomes highly probable as the number of persons involved in voluntarily financing a pure public good
increases.
c. is independent of the number of persons involved in a scheme to voluntarily finance a pure public good.
d. does not prevent voluntary cooperation in small communities from efficiently providing pure public
goods.
e. Both (b) and (d).

3. The marginal cost of allowing an additional consumer to use a certain quantity of a pure public good,
after it is already being provided to any one consumer, is:
a. Positive.
b. Zero.
c. Negative.
d. Depends on this quantity produced.

4. Which of the following is a good example of a pure public good:

a. TV programming.
b. A loaf of bread.
c. National Defense.
d. A road.

5. Bread is an example of a:
a. Congestible public good.
b. Price-excludable public good.
c. Pure public good.
d. Pure private good.

The following table shows the marginal benefit of a number of security guards, in a residential area, per
resident (in L.E). Answer questions 6,7, and 8 that follow the table.
6. The value of the demand curve for security guards corresponding to 2 security guards being provided will be:
a. 400.
b. 700.
c. 125.
d. 300.

7. If the marginal cost of hiring security guards is L.E 250, no matter how many are hired, then what is the efficient number
of security guards to have in this residential area?
a. 1.
b. 2.
c. 3.
d. 4.

8. How many security guards will be hired if the marginal cost of hiring a security guard was L.E 1000 instead of L.E 250:
a. 0.
b. 1.
c. 2.
d. 3.
e. 4.

9. A proposal to build a new bridge in a small town is up for a vote. Voter "A" estimates that his marginal benefit of bridges
at the proposed new level would be L.E 1000. This voter will vote against the proposal?
a. no matter what his tax share.
b. if his tax share is L.E 1000.
c. if his tax share is less than L.E 1000.
d. if his tax share exceeds L.E 1000.

10. A community currently hires 10 security guards per week to patrol their neighborhood. Each security guard costs L.E
1200 per week. Assuming that the cost-sharing arrangement agreed upon results in each of the 300 community members
paying the same cost share, each member will pay a weekly bill of:
a. L.E 4.
b. L.E 3.
c. L.E 40.
d. L.E 30.

1. When a market is dominated by a single firm, the resulting output level is efficient. (False)

2. China’s “One-Child” policy is one of the main reasons behind its “aging population” problem and its high
“old age dependency ratio” which will reach 38 by the year 2050. (True)

3. When negative externalities exist in a cement industry, a perfectly competitive market produces less than
the efficient output. (False)

4. The “minimum-wage” policy is an example of a case where relying on normative economics is not
enough (True)
Assuming a perfectly competitive market for wheat with the equilibrium being attained at: Q*= 2 million
tons of wheat, and P*= LE 4 per ton. With wheat being a strategic good however, where quantity produced
has to be 3 million tons, assume that for this purpose, the government applies a subsidy program that ensures
a target price of LE 5 per ton for farmers whenever the market price falls below this level. If
MPB=MSB=L.E 3 at that strategic level of output, please answer the following questions:

1. Draw a graph that shows the perfectly competitive equilibrium and the equilibrium resulting from this
kind of government intervention.

• The perfectly competitive equilibrium is shown at (E* ) where Q* PC = 2 and P* PC = 4.

• The equilibrium resulting from applying the subsidy program is shown at (E1) where
Q1=3 and P1 = 3.

2. The government intervention through the above subsidy program:

a) Leads to the production of less wheat than the efficient level.
b) Leads to an efficiency gain.
c) Leads to an efficiency loss.
d) Is considered a corrective subsidy.

3. At the new output level which is achieved after the subsidy program is introduced:
a) MSC is greater than MSB
b) MSB is greater than MSC
c) MSC = MSB
d) None of the above

4. The economic cost associated with this kind of government intervention consists of:
a) A subsidy bill, of 6 million pounds, in the government’s budget.
b) An area of marginal net losses resulting from producing more than the efficient output level.
c) Losses incurred by the farmers due to the subsidy program
d) Both (a) & (b).

1. Which of the following is a positive statement?

a. A minimum-wage policy achieves equity.
b. When interest rates rise, the quantity of loanable funds demanded will decline.
c. When governments increase income tax rates, tax evasion increases.
d. Both (b) and (c).
2. Nonmarket rationing means that:
a. Those willing to pay can buy as much of a product as they choose.
b. Prices are used to sell products.
c. Willingness to pay is not a factor in determining who can enjoy a good or service.
d. All of the above.

3. If the economy is currently operating on a point on the production possibility curve for government goods
and services versus private goods and services:
a. an annual increase in government goods and services can be obtained without any sacrifice of annual
private goods and services.
b. it will be impossible to increase annual output of government goods and services.
c. a decrease in the annual output of government goods and services will have no effect on the annual output
of private goods and services.
d. a decrease in the annual output of government goods and services will allow an
increase in annual output of private goods and services.

4. The probability of having an aging-population problem is higher:

a. the lower the fertility rates.
b. the higher the life-expectancy at birth.
c. the more advanced the health care system.
d. All of the above

5. Which of the following statements is considered true under monopoly:

a. Markets are dominated by a single firm which tries to control the price level.
b. Profit maximizing level of output is the one at which MR = MC.
c. The economy tends to produce a lower output level and a higher price level compared to the situation
under perfect competition.
d. Efficiency is at risk.
e. All of the above.

6. The efficient output level of a good is determined at that level at which:

a. TSB and TSC curves intersect
b. MSB and MSC curves intersect
c. Total Net Benefit is maximized
d. Marginal Net Benefit is zero
e. All of the above.
f. (b), (c), and (d) are the correct ones.
A corrective subsidy is a tool in the hands of governments to internalize positive externalities. Use a
graph to illustrate how the government can use this tool with the vaccination industry in order to
achieve efficiency.

A Corrective Subsidy:
• Is a payment made by government to either buyers or sellers of a good so that the price paid by consumers
is reduced (aim is to increase production towards the efficient level while keeping price
reasonable).

• Is considered a means of Internalizing Positive Externalities in which MPB of goods/services is adjusted so

that the consumers consider the actual MSB of their decisions through adding MEB to MPB.

• This payment must equal the MEB.

• As the vaccination industry results in a positive externality, free market equilibrium will be inefficient as
at that output level- shown at point (U) - MSB exceeds MSC. Therefore, perfectly competitive market
produces less than the efficient output and leads to a market failure.

• In that case, the government resorts to the corrective subsidy tool in order to internalize that externality.
This subsidy will add MEB to the MPB of each vaccination to reflect the actual MSB resulting in shifting
the demand curve upward from D to D' and moving the equilibrium from point U to point V.

• The new equilibrium resulted from applying the corrective subsidy - shown at point (V) - is efficient as
at that output level MSB = MSC.

• Therefore, the corrective subsidy used by governments to internalize the positive externalities corrected
the market failure and achieved efficiency
1. In case of inflation , the government should decrease the required reserve ratio.(F)

2. The higher the old aged dependency ratio , the higher will be the budget surplus.(F)

3. Government provision of public goods does not require resources to be reallocated from private to
government use. (F)

4. Transfer payments, including Social Security and welfare and medical assistance. (T)

5. The higher G/GDP ratio , the more powerful is the government.(T)

6. Allocation function of public sector is related to the distribution of income among individuals. (F)

7. There is no need for public sector. (F)

8. Government could stabilize an economy through inflationary phase by decreasing taxes and increasing its
spending. (F)

8. All public goods should be produced and provided by public sector.(F)

9. Public sector used fiscal policy to achieve economic stability.(T)

10. There is only one producer of public goods.(F)

11. Taxes are one of the monetary policy tool that government could use to stabilize economy during phases
of business cycle.(F)

12. In case of unemployment , the government should enter the market by selling bond.(F)

13. A point out the PPF is an efficient and attainable point.(F)

15. Regulation function of public sector is related to the task of constructing an institutional framework for
the economy .(T)

1.The real cost of government goods and services is:

a. money.
b. taxes.
c. the private goods and services foregone.
d. inflation.

2.If the economy is currently operating on a point on the production possibility curve for government goods
and services versus private goods and services,
a. an annual increase in government goods and services can be obtained without any sacrifice of annual
private goods and services.
b. it will be impossible to increase annual output of government goods and services.
c. a decrease in the annual output of government goods and services will have no effect on the annual output
of private goods and services.
d. a decrease in the annual output of government goods and services will allow an increase in annual output
of private goods and services.

3.Government goods and services are usually:

a. not rationed by prices
.b. sold in markets.
c. made available to persons according to their willingness and ability to pay.
d. financed by revenue obtained from sales.

4.Taxes:
a. are prices paid for the right to consume government goods and services.
b. are compulsory payments not directly related to the benefits received from government goods and
services.
c. never affect economic incentives.
d. are used by private firms to raise revenue.

5.A mixed economy is one in which:

a. there are no markets.
b. Government activity accounts for a significant proportion of the value of goods and services produced.
c. there is no government.
d. all goods and services are sold in markets.

6.Government purchases for consumption and investment:

a. are made to acquire resources necessary to produce government goods and services.
b. are designed to redistribute purchasing power among citizens.
c. have increased in importance as a percent of federal spending since 1959.
d. do not withdraw resources from private use.

7.If the economy is operating at full employment and using resources efficiently, then an increase in
spending for homeland security this year will:
a. require that resources be reallocated to homeland security services without sacrificing any alternative
goods and services.
b. be possible if resources are reallocated to homeland security services, but it will also mean that the output
of some other goods and services will have to fall.
c. be impossible.
d. be possible only if there is an improvement in technology or more resources made available.

8.Nonmarket rationing means that:

a. those willing to pay can buy as much of a product as they choose.
b. prices are used to sell products.
c. goods and services are not rationed by prices.
d. willingness to pay is not a factor in determining who can enjoy a good or service.
e. both (c) and (d)

9.The U.S. economy is best characterized as a:

a. pure market economy.
b. socialist economy.
c. pure capitalistic ,free-enterprise system.
d. mixed economy.

10.The old-age dependency ratio is:

a. the proportion of the population that is 60 years or older over the proportion ofthe population that is less
than 60 years of age.
b. the proportion of the population that is 65 years or older over the proportion of the population that is 15 to
64 years of age.
c. the proportion of the population that is 70 years or older over the proportion of the population that is 20 to
69 years of age.
d. the total government expenditure on programs for the elderly over the number of citizens that are 65 years
or older.
11. Following the circular flow of a mixed economy, firms receive a flow of dollars from and send goods
and services to:
a. Output Markets.
b. Input Markets.
c. Households.
d. Government.

12. Following the circular flow of a mixed economy, which entity or entities distribute resources?
a. Firms only.
b. Input Markets only.
c. Government and Households.
d. Households and Input Markets.

13. The higher the percentage of government Expenditure to GDP in a certain economy, then all of the
following is true EXCEPT:
A) The powerful is this government.
B) The lower is the social security and health care programs.
C) Most of poor citizens are satisfied.
D) Without enough revenues, the government will face deficit.

14. Economies experience periods of sustained, rapid increase in prices known as Inflation. Inflation is
defined as a general increase in prices and fall in the purchasing value of money. Which of the following is
NOT among the features of Inflation?
A) An increase in Gross Domestic Product.
B) Shortage in Money Supply.
C) Accompanied by a rise in the price level
D) An increase in Aggregate Demand.

15. In a recessionary phase of the economy, the government should……..

A) Increase interest rates & decrease Government spending
B) Sell bonds and decrease taxes
C) Increase Government spending & decrease Interest rates
D) Buy bonds and increase taxes

1. The normative approach to public finance prescribes certain actions to achieve predetermined criteria. (T)

2. If the marginal social benefit of Vaccination exceeds its marginal social cost, then efficiency is attainable
if an increase in its annual production is achieved. (T)

3. “The government should abolish tariffs to achieve efficiency” is a positive statement. (F)

4. It is possible for efficiency not to be attained even if all production is carried on without waste. (T)

5. Efficiency is attained when resources are used each year in such a way that no further net benefit (gain) is
possible. (T)

6. Positive economic analysis is based on underlying value judgments. (F)

7. If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional net
gains are possible from an increased annual smoke detector production. (T)

8. Monopoly power causes losses in efficiency because the marginal social benefit of output exceeds its
marginal social cost at the monopoly output. (T)
9. Efficient outcomes are often viewed as equitable. (F)

10.Points lying below a Production possibility curve are efficient. (F)

11.The efficient annual output of any given good is attained if that good is made available in amounts up to
the point at which the total social benefit of the good equals the total social cost. (F)

12.If the marginal social cost of beer production exceeds its marginal social benefit, then more than the
efficient about of beer is being produced. (T)

13.Negative spillover effects is occurred where the MSB is greater than MSC.(F)

14.In case of perfectly elastic goods , the producer can shift the whole burden of taxes on consumers.(F)

15.Unemployment rate increased if there is monopolistic power exercised in the market.(T)

16.If it is not possible to make someone better off without harming another, then resource allocation is
efficient. (T)

17.In case of imposing taxes, the new supply curve will represent the MSC plus a part of the tax imposed. (F)

18.An Increase in income taxes will reduce worker incentive to work "A Normative Economics".(F)

19.The MR curve in case of any of imperfect markets is exactly his D Curve.(F)

20.The policy dilemma is occurred between equity and efficiency. (T)

21.All externalities are related to production, and all externalities are considered costs.(F)

22.The rate of unemployment in case of Pure monopoly is higher compared to monopolistic competition.(T)

23.The loss in net benefit in case of imposing tax indicates the excess surplus of this tax.(F)

24. If a monopoly can produce 100 units of steel sold at a price of 300$ per unit, then the perfectly
competitive producer could only produce 85 units sold at 400$ per unit.(F: the opposite)

24.Compensation criteria states that if the costs from a certain tax is greater than its benefits , then the
government should impose the tax with a compensation to the group of losers by more subsidies.(F)

25.The higher the tax rates imposed by the government , the larger is the loss of net benefits .(T)

26.Monopoly is an idealized market that is hard to find in reality.(F)

27.The equilibrium condition of a firm in a perfectly competitive market is AR = AC.

28.Imperfect competition markets are markets that have producers large in their market share enough to
control the prices.(T)

29.The transactions of competitive markets always result in net gains to citizens’ well-being.(F)

30.Efficiency is a positive criterion for evaluating the effects of resource use on the well-being of
individuals.(F)
31.If it is impossible to increase the well-being of any one person without reducing the well- being of
another, the Pareto Optimality could be achieved.(T)

32.Externalities could be observed only in production side.(F)

33."Unemployment is more dangerous than Inflation" represents a normative statement.(T)

35. Efficiency and equity are simultaneously achieved when MSC=MSB.(F)

1.Positive economics:
a.makes recommendations designed to achieve certain goals.
b.establishes cause-and-effect relationships between economic variables.
c.is based on value judgments.
d.can never be used to make predictions.

2.If the efficient output of a good is produced each week, then the:
a.marginal social benefit of the good equals its marginal social cost each week.
b.marginal social benefit of the good is at a maximum.
c.total social benefit of the good is at a maximum.
d.total social benefit of the good equals its total social cost.

3.If MSB of a good exceeds MSC at the current monthly output, then:
a.it will be possible to make buyers of the good better off without harming sellers of the good.
b.it will be possible to make sellers of the good better off without harming buyers of the good.
c.either (a) or (b)
d.a reduction in monthly output will be required for efficiency.

4.The MSC of bread exceeds the MSB at the current weekly output. Therefore,
a.the marginal net benefit of bread is positive.
b.the output of bread is efficient.
c.a reduction in weekly output of bread is necessary to achieve efficiency.
d.an increase in weekly output of bread is necessary to achieve efficiency.

5.TSB of automobiles equals TSC at current annual output. Then it follows that:
a.the annual output of automobiles is efficient.
b.the annual output of automobiles exceeds the efficient amount.
c.less than the efficient annual output of automobiles is produced.
d.it is not possible to make buyers of automobiles better off without harming sellers.
e.both (a) and (d).

6. Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of
eggs are affected in any way when eggs are traded in the market. Then it follows that:
a.the price of eggs equals the marginal social cost of eggs.
b.the price of eggs equals the marginal social benefit of eggs.
c.the price of eggs exceeds the marginal social benefit of eggs.
d.both (a) and (b).

7.Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:
a.the marginal social benefit of diamonds exceeds its marginal social cost.
b.the marginal social cost of diamonds exceeds its marginal social benefit.
c.the price of diamonds equals its marginal social cost.
d.the price of diamonds exceeds its marginal social benefit.
e.both (c) and (d).
8.If efficiency has been attained,
a.it will be possible to make any one person better off without harming another.
b.it will not be possible to make any one person better off without harming another.
c.perfect competition must exist.
d.the opportunity cost of any change in resource use must be zero.

9. An efficient level of output means:

a.the total social benefit minus the total social cost is maximized.
b.the total social benefit is below the total social cost.
c.the total social cost equals the total social benefit.
d.the total social benefit less the total social cost can be improved.

10.Normative economics is:

a.completely free of any value system.
b.completely objective.
c.based on a a conscious effort to implement a particular social goal.
d.an approach that determines the effect of particular actions without judgment of the result being good or
bad.

11.Which of the following is a normative statement?

a.When interest rates rise, the quantity of loanable funds demanded for new mortgages will decline.
b.To achieve efficiency, governments should prevent monopoly in markets.
c.Unemployment increases during a recession.
d.When governments increase income tax rates, people work less.

12.Normative economics:
a.is not based on underlying value judgments.
b.makes recommendations to achieve efficient outcomes.
c.establishes cause-and-effect relationships between economic variables.
d.makes “if…then” type statements and checks them against the facts.

13.The extra benefit on one more unit of a good or service is its:

a.marginal cost.
b.marginal benefit.
c.total benefit.
d.total cost.

14.If the efficient output of computers is achieved this year, then market price of computers is equal to:
a.MSB of computers.
b. MSC of computers.
c. TSC of computers.
d.TSB of computers.
e. both (a) and (b).

15.Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream
consumption will:
a.allow efficiency to continue to prevail in the market.
b.result in more than the efficient output in the market.
c.result in less than the efficient output in the market.
d.cause the marginal social cost of ice cream to exceed its marginal social benefit at the market equilibrium
output.

16.Positive economics is:

a.an equity based approach in which income should be redistributed.
b.an objective approach without a particular goal based on underlying values.
c.a goal oriented approach based on desired policy outcomes.
d.a belief that governments can implement economic policies for the greater good of society.

17.Production should decrease to reach the efficient point in which of the following cases?
A) MSB < MSC
B) B) MSB = MSC
C) C) MSB > MSC
D) D) MSB ≠ MSC

18.Which one of the following is NOT one of the assumptions in Perfect competition market
A) perfect information
B) perfect mobility
C) prices are given
D) perfect quality

19.In which of the following markets, government has the least role?
A) Perfect competition market
B) Monopolistic market
C) Oligopoly market
D) Monopoly market

20. Which one of the following factors is the MOST likely to influence decisions about the burden of
increased taxes on a producer’s pricing strategy?
A) The old price before taxes
B) The newest competitor prices
C) The elasticity of the product
D) The regulation of government

1. Rival goods are only private goods. (F)

2. Club goods are subtype of public goods, which are non-rival and excludable.(T)

3. In case of decreasing cost scheme , the producers use prices as signals , yet inefficient output is likely to
be found.(T)

4. Pastures, forests, fishing areas and irrigation are main types of common goods. (T)

5. Private goods market depends on political perspective.(F)

6. Sometimes club goods could be converted forever to a Non-Rival goods if it reaches the point of
congestion.(F)

7. Common goods are known as Artificially –Scarce Goods .(F)

8. In the market system , Producers respond only to ineffective demand.(F)

9. Effective demander can protect the market from inefficiency .(T)

10. Internet service is an example of a price-excludable public good. (T)

11. Consumers can reveal their preferences in the public goods market indirectly via political process.(T)
12. The loss of efficiency in the provision of education service is higher compared to national defense
service.(F)

13. Bread is one example of private goods , however public transportation is an example of club goods.(T)

14. Poor consumers can reveal their preferences directly and then market mechanism effectively work.(F)

15. Macro-economic problems justify role of government.(T)

16. There is only one price for the public good. (F)

17. Voting on tax and government expenditure affects the provision of social goods.(T)

18. The demand curve for a pure public good is obtained by adding the quantities demanded by each
individual consumer at each possible price. (F)

19. The level of market failure is higher in the nonmarket rationing goods compared to other goods .(T)

20. Bread is an example of a good that is non-rival in consumption. (F)

21. A pure public good is one for which it is easy to exclude consumers from benefits if they refuse to
pay.(F)

22. Market fails to reach efficient level of output if produces ignore price signals and depending on
decreasing cost.(T)

23. Clubs are a means of providing congestible public goods through markets. (T)

24. 24.Cinema is a common example on congestible price excludable goods.(T)

25. A common way to fund a public good is through a government that raises funds via taxation. (T)

26. Private education is an example of a price-excludable public good. (T)

27. A congestible good has no limits in how much it can be consumed. (F)

28. In case of effective demand , the producers use prices as signals.(T)

29. In case of imperfect terms and conditions of business contracts , the market failure is likely to be
achieved.(T)

30.The larger the number of Rational investors in a certain economy , the higher will be the loss in
efficiency.(F)

1.Cinemas are:
a. Rival and excludable.
b. Non-Rival and excludable.
c. Rival and Non-excludable .
d. Non-Rival and Non excludable.

2. Irrigation Systems are:

a. Rival and excludable.
b. Non-Rival and excludable.
c. Rival and Non-excludable .
d. Non-Rival and Non excludable.
3. National defense Services are:
a. Rival and excludable.
b. Non-Rival and excludable.
c. Rival and Non-excludable .
d. Non-Rival and Non excludable.

4. Milkshake is :
a. Rival and excludable.
b. Non-Rival and excludable.
c. Rival and Non-excludable .
d. Non-Rival and Non excludable.

5.Market Fails to reach efficiency in providing private goods if:

a. Price Signals respond to consumer preferences.
b. Economy is stabilized.
c. Consumers can reveal their preferences.
d. Spillover effects are exited.

6.Consumers reveal their preferences in private goods market directly through:

a. Effective Demand.
b. Ineffective demand.
c. Price Mechanism.
d. both a & c.

7.Resources could be diverted towards social needs , if :

a. political institutions are effective.
b. Consumers vote on taxes and government expenditures.
c. demand of public goods equal its supply.
d. both a & b.

8.price – excludable public goods are known as:

a. common goods.
b. Club goods.
c. private goods.
d.non of the above.

9.A pure public good is:

a.one that can easily be sold by the unit.
b.one that is non-rival in consumption.
c.one whose benefits are not subject to exclusion.
d.both (b) and (c)

10.The marginal cost of providing a certain quantity of a pure public good to an additional consumer after it
is provided to any one consumer is:
a.zero.
b.positive and increasing.
c.positive and decreasing.
d.positive and constant.

11.The non-rival property of pure public goods implies that the:

a.benefits enjoyed by existing consumers decline as more consumers enjoy a given quantity of the good.
b.benefits enjoyed by existing consumers are unaffected as more consumers enjoy a given quantity of the
good.
c.good cannot be priced.
d.marginal cost of producing the good is zero.

12.The demand curve for a pure public good is:

a.a horizontal line.
b.obtained by adding the quantities individual consumers would purchase at each possible price.
c.obtained by adding the marginal benefit obtained by each consumer at each possible quantity.
d.the marginal cost curve for the pure public good.

13.Cable TV programming is an example of a:

a.congestible public good.
b.price-excludable public good.
c.pure public good.
d.pure private good.

14.A major distinction between pure public goods and pure private goods is that:
a.pure private goods can easily be priced and sold in markets.
b.pure public goods can easily be divided into units.
c.pure public goods can only be collectively consumed.
d.both (a) and (c)

15.The principle of non-exclusion for pure public goods means that the benefits of the good:
a.are shared.
b.can be priced.
c.cannot be withheld from consumers even if they refuse to pay.
d.are not reduced to any one consumer when a given quantity is consumed by another.

16.The efficient output of a pure public good is achieved at the point at which:
a.the marginal benefit obtained by each consumer equals the marginal social cost of producing the good.
b.the sum of the marginal benefits of all consumers equals the marginal social cost of producing the good.
c.the marginal benefit of each consumer equals zero.
d.the marginal social cost of producing the good is zero.
e.both (c) and (d).

17.A free concert in a public area is:

a.a non-congestible public good.
b.a good that can be consumed by all.
c.a private good.
d.subject to consumption limits.

18. Market failure - in common goods is due to:

a. non-excludability.
b. excludability.
c. non-rival.
d.non of the above.

19. In case of public (social) goods, the equilibrium (available) quantity is:
b. different at each price level.
a. constant at different prices.
c. both a and b.
d.non of the above.

20. political process (voting on tax and government expenditure) must used by consumers to:
a. divert resources towards social goods that are more preferable.
b. affect fiscal policy decisions and budget structure.
c. reveal the ineffective demanders' preferences indirectly.
d. All of the above.

1. A flat-rate income tax is a proportional tax on an income base. (T)

2. The marginal tax rate will eventually exceed the average tax rate if the tax rate structure is proportional.(F)

3. The marginal tax rate for a payroll tax is 7 percent on all wages up to $60,000 per year. The marginal tax
rate for wages in excess of $60,000 per year is zero. The payroll tax is therefore a regressive tax. (T)

4. The gasoline tax is an example of a general tax on consumption. (F)

5. For a proportional tax, the marginal tax rate is always equal to the average tax rate. (T)

6. one of the uses of the taxes is to help the government doing its distribution function.(T)

7. A flat income tax (i.e. a fixed amount paid by every taxpayer) is an example of a selective tax. (F)

8. The average tax rate and marginal tax rate are the same under a progressive tax rate structure. (F)

9. The benefit principle argues that the means of financing government goods and services should be linked
to the benefits received from those goods and services. (T)

10. Horizontal equity approach is achieved when individuals of the same economic capacity pay the same
amount of taxes over a given period. (T)

11. Goals of efficiency and equity in distribution of taxes unlikely to conflict.(F)

12. Tax evasion would be less of a problem if tax rates were lowered. (T)

13. Trade-off between equitable and efficient system resolved through political interaction.(T)

14. Democratic tax systems often full of exemptions and deductions for particular groups to facilitate
achieving equality.(T)

15. Lorenz curve studies the distributional effects of applying progressive taxes on household income.(T)

16. The lower the noncompliance, the higher the tax rates necessary to raise revenue.(F)

17. Tax avoidance is defined as a change in behavior to reduce tax liability illegally.(F)

18. Donations might be Occasionally used to finance particular programs.(T)

19. Government activity requires the reallocation of resources from government to private use and taxes help
in doing that. (F)

20. Regressive tax system is the more preferable to avoid recession .(T)

21. The farther the Lorenz curve from the equal distributional line, the higher will be the inequity in income
distribution.(T)

22. if regressive tax system is applied, then we expect for only ATR to be decreased with higher levels of
income .(F)

23. Treasury bonds are highly exposed to inflation risk.(T)

24. One of the governmental schemes to induce inflation- in a certain economy- is by selling more bonds.(F)

25. Induced inflation method will let more of the resources used by the private sector free.(T)

26. Taxes to help government in producing public goods and services.(False-purchasing)

27. The tax rate system represented by the following time series is considered as progressive system:(ATR
and MTR are respectively as follows with higher income levels 30%, 40%then 32%,45% then 40%,50%).(T)

28. Treasury bills could not help government to induce inflation.(T)

29. The curve of ATR is higher than curve of MTR in case of regressive tax structure where both of them
are with positive slope.(F: negative slope)

30. The slope of both ATR and MTR curve is zero in case of proportional tax rate structure.(T)

1.The tax base of a payroll tax is:

a.consumer expenditures.
b.interest income.
c.labor income.
d.both (b) and (c).

2.A 5% sales tax on all consumer purchases in a state is imposed. The sales tax is:
a.a flat-rate tax.
b.a tax with a regressive rate structure.
c.levied on an income base.
d.all of the above.

3.A tax on the value of real estate holdings is a:

a.selective tax on wealth.
b.general tax on wealth.
c.general tax on income.
d.selective tax on income.

4.An excise tax is a:

a.general consumption tax.
b.selective consumption tax.
c.general wealth tax.
d.selective tax on wealth.

5.A payroll tax taxes a worker’s wages at 14 percent until the worker earns $60,000 per year. All labor
earnings in excess of $60,000 are not subject to tax. The tax rate structure of the payroll tax is therefore:
a.proportional.
b.progressive.
c.regressive.
d.flat-rate.

6.Taxes are likely to affect:

a.market equilibrium.
b.political equilibrium.
c.the distribution of income.
d.all of the above.
7.Taxes:
a.are voluntary payments to governments.
b.are unlikely to affect market supply and demand.
c.never affect efficiency in the allocation of resources.
d.are compulsory payments associated with certain activities.

8. A bridge becomes congested after 100 vehicles per hour use it on any day. To achieve efficiency, a toll:
a.that charges all users of the bridge, no matter how many vehicles use it per hour, should be imposed.
b.on additional users in excess of 100 per hour should be imposed.
c.on all users should be imposed, if more than 100 users per hour are expected.
d.is not required.

9.The marginal tax rate will eventually exceed the average tax rate for a:
a.proportional tax.
b.regressive tax.
c.progressive tax.
d.flat-rate tax.

10.If the marginal tax rate is 20% under a proportional tax rate structure, the average tax rate:
a.should be 20%.
b.should be above 20%
.c.should be below 20%.
d.cannot be determined.

11.If the average tax rate under a progressive tax rate structure is 35%, a possible marginal tax rate is:
a.30%.
b.25%.
c.42%.
d.not able to be determined.

12. According to the benefit principle,

a. taxes should be distributed according to ability to pay.
b. user charges are an ideal source of finance for government goods and services.
c. the progressive income tax represents the ideal way of distributing taxes among citizens.
d. flat-rate taxes are always the best kind.

13.If horizontal equity is achieved in taxation,

a. vertical equity will also be achieved.
b. individuals of equal economic capacity will pay equal taxes.
c. a flat-rate tax will be used.
d. the tax system will not result in losses in efficiency in markets.

14. A government prints money to finance its expenditures. As a result,

a. the economy can operate at a point inside its production possibility curve.
b. inflation will occur.
c. consumers will give up private goods to finance the increased government expenditures.
d. both (b) and (c)

15. What is an example of a normative criterion that a government must trade-off in its method of taxation?
a. Equity
b. Efficiency
c. Administrative ease
d. all of the above
16. Tax avoidance is:
a. a means of tax evasion.
b. a means of decreasing taxes paid by adjusting behavior.
c. a political process explicitly for the reduction of taxation.
d. a means to avoid tax owed.

17. A proportional income tax has an average tax rate that:

a.always is less than the marginal tax rate.
b.always exceeds the marginal tax rate.
c.equals the marginal tax rate at first and then becomes less than the marginal tax rate.
d.always equals the marginal tax rate.

18. Marginal tax rates were reduced in 2001. Other things being equal, this is likely to:
a. increase tax evasion.
b. decrease tax evasion.
c. have no effect on tax evasion.
d. increase tax avoidance.

19.suppose a progressive tax system with ATR and MTR respectively equal to 20%, 35% at a certain level
of income, then at previous levels of income the MTR and ATR are expected to be
a.35%, 20%
b. 30%,15%
c.15%, 30%
d.22% ,25%

20.all of the following are true except:

a. MTR curve is above ATR in case of Progressive tax system.
b. MTR curve is under ATR in case of Regressive tax system.
c. MTR curve is above ATR in case of Regressive tax system.
d. MTR and ATR curves are the same in case of proportional tax system.

1- If you are given the following information for Egypt: total population is 100 million, population with the
age of 65 and above are 5 million, and working- age population are 50 million. Which of the following
statements is considered incorrect?
a. The elderly (population aged 65 and above ) in Egypt represent 5% of total population.
b. Old-age dependency ration in Egypt is 10%
c. More developed economies with improved healthcare systems tend to have less severe aging population
problems compared to Egypt.
d. Social security pensions are among the budget items that are expected to increase with the population-
aging problems.

2- The following represent popular forms of “market failures” except for:

a. monopolistic power
b. Externalities
c. Public goods
d. Inequality of income distribution

3- Monopoly results into:

a. a lower output level and a higher price level compared to the situation under a perfectly competitive
market
b. A higher output level and a lower price level compared to the situation under a perfectly competitive
market
c. A higher output level and a higher price level compared to the situation under a perfectly competitive
market
d. Losses in net benefits
e. A & d

4- Macroeconomic stabilization requires to:

a. keep the employment rate relatively low
b. Allow for excessive inflation rates
c. Avoid excessive ratios of budget deficit and public debt to GDP
d. A & B
e. None of the above

5- The production possibility curve can be used to show:

a. the indirect economic cost of government activity
b. The direct economic cost of government activity
c. The sacrifice in the quantity of private goods and services when government decreases its quantity of
goods and services
d. None of the mentioned statements
E. b & c

6- A perfectly competitive market of “Perfumes” achieves equilibrium at: Q* = 5 bottles, P* = LE 200 per
bottle. A tax equals to LE 10 per bottle imposed by the government leads to a new equilibrium at which: Q=
2 bottles, and P = LE 205 per bottle. Which of the following statements is correct:
a. after the tax is imposed, producers are willing to supply less quantity of the good at each price level.
b. Tax revenues collected by the government equals LE 50
c. Excess burden of the tax measures the losses in net benefits resulting from producing more than the
efficient output level
d. The tax burden in this example is completely incurred by the consumers

7- Your favorite drink at Starbucks is “ Hot Chocolate”. decrease in the demand ( by other consumers) for
your preferred drink might push its price down. The impact of this on your own well-being can be
considered as:
a. a positive externality
b. A negative externality
c. A pecuniary externality
d. An excess burden

8- What of the following statements best describes the marginal external cost (MEC) of producing steel?
a. it is a part of the marginal social cost (MSC) of steel.
b. It is incurred by steel producers
c. It can be internalized through a corrective subsidy provided by the government to steel producers
d. It is reflected in the market price of steel

9- Cinema can be classified as:

a. a pure private good
b. A pure public good
c. A price- excludable good
d. A congestible public good
10- Pure public goods are most likely to be financed by:
a. Tax revenues
b. Sales revenues
c. Both tax revenues and sales revenues
d. Memberships and admissions

11- The “excess burden” of a tax refers to the tax revenues collected by the government from tax-payers
a. True
b. False

12- According to the critics of the market system, while free market mechanism may succeed in achieving
“equality”, it may fail to achieve “efficiency” which requires the government s intervention
a. True
b. False

13- Total social benefit (TSB) can be measured by the maximum amount of money given up by people to
obtain an extra unit of a good or services
a. True
b. False

14- “Coase theorem” is based on the fact that the government can internalize externalities, through
corrective taxes and subsidies, as long as such externalities are small in size
a. True
b. False

15- when market equilibrium is reached, this implies necessarily that the resources are efficiently allocated.
a. True
b. False

1. On average, persons in the United States devote more of their annual budgets to taxes than they do to food.
(T)

2. A universally observed function of government is the establishment of property rights. (T)

3. The total share of GDP accounted for by government spending in the United States has declined
significantly since 1980. (F)

4. In 1929, the federal government spent more than was spent by state and local governments. (F)

5. Since 1930, the percent of GDP devoted to government expenditures has more than tripled. (T)

6. The costs imposed by government regulations on business firms are included in budget data on
government expenditures. (F)

7. Government consumption does not require resources to be reallocated from private to government use. (F)

8. Since 1959, the percent of federal government expenditures devoted to transfers has increased by more
than 50 percent. (T)
9. Transfer payments, including Social Security and welfare and medical assistance, account for nearly 60
percent of federal government expenditures. (T)

10. Interest on the federal government’s debt accounts for about 20 percent of federal government
expenditure. (F)

11. Federal grants-in-aid to state and local governments finance about 20 percent of annual spending by
these governments. (T)

12. The federal government allocates about 10 percent of its budget to Social Security. (F)

13. State and local governments in the United States spend a bit more than one-third of their budgets on
education. (T)

14. Sales taxes account for about 22 percent of state and local government revenue in the United States. (T)

15. The federal government obtains about half of its revenue annually from retail sales taxes. (F)

16. State governments do not fund any part of Medicaid. (F)

17. The social compact is an 18th century idea by political theorists. (F)

18. The proportion of revenue received by the federal government from payroll taxes is higher than the
proportion of revenue received by state and local governments from payroll taxes. (T)

1. The real cost of government goods and services is:

a. money.
b. taxes.
c. the private goods and services foregone.
d. inflation.

2. If the economy is currently operating on a point on the production possibility curve for government goods
and services versus private goods and services,
a. an annual increase in government goods and services can be obtained without any sacrifice of annual
private goods and services.
b. it will be impossible to increase annual output of government goods and services.
c. a decrease in the annual output of government goods and services will have no effect on the annual output
of private goods and services.
d. a decrease in the annual output of government goods and services will allow an increase in annual output
of private goods and services.

3. Government goods and services are usually:

a. not rationed by prices.
b. sold in markets.
c. made available to persons according to their willingness and ability to pay.
d. financed by revenue obtained from sales.

4. Taxes:
a. are prices paid for the right to consume government goods and services.
b. are compulsory payments not directly related to the benefits received from government goods and
services.
c. never affect economic incentives.
d. are used by private firms to raise revenue.
5. A mixed economy is one in which:
a. there are no markets.
b. government activity accounts for a significant proportion of the value of goods and services produced.
c. there is no government.
d. all goods and services are sold in markets.

6. Government purchases for consumption and investment:

a. are made to acquire resources necessary to produce government goods and services.
b. are designed to redistribute purchasing power among citizens.
c. have increased in importance as a percent of federal spending since 1959.
d. do not withdraw resources from private use.

7. Transfer payments by the federal government in the United States account for about:
a. 25 percent of federal government expenditures.
b. 10 percent of federal government expenditures.
c. 40 percent of GDP.
d. 60 percent of federal government expenditures.

8. Total annual expenditures by federal, state, and local governments in the United States in the 1990s
accounted for roughly:
a. 20 percent of annual GDP.
b. 30 percent of annual GDP.
c. 50 percent of annual GDP.
d. 75 percent of annual GDP.

9. Federal government expenditures in the United States account for about:

a. 23 percent of annual GDP.
b. 33 percent of annual GDP.
c. 43 percent of annual GDP.
d. 53 percent of annual GDP.

10. About 80 percent of federal receipts are accounted for by:

a. corporate profits taxes.
b. sales taxes.
c. excise taxes.
d. payroll and personal income taxes.

11. If the economy is operating at full employment and using resources efficiently, then an increase in
spending for homeland security this year will:
a. require that resources be reallocated to homeland security services without sacrificing any alternative
goods and services.
b. be possible if resources are reallocated to homeland security services, but it will also mean that the output
of some other goods and services will have to fall.
c. be impossible.
d. be possible only if there is an improvement in technology or more resources made available.

12. Which of the following is an example of a political institution?

a. a market
b. elections with winners determined by majority rule
c. representative government
d. both (b) and (c)

13. Nonmarket rationing means that:

a. those willing to pay can buy as much of a product as they choose.
b. prices are used to sell products.
c. goods and services are not rationed by prices.
d. willingness to pay is not a factor in determining who can enjoy a good or service.
e. both (c) and (d)

14. The U.S. economy is best characterized as a:

a. pure market economy.
b. socialist economy.
c. pure capitalistic, free-enterprise system.
d. mixed economy.

15. State and local government expenditure in the United States accounts for about:
a. 32 percent of GDP.
b. 22 percent of GDP.
c. 12 percent of GDP.
d. 7 percent of GDP.

16. Following the circular flow of a mixed economy, firms receive a flow of dollars from and send
goods and services to:
a. Output Markets.
b. Input Markets.
c. Households.
d. Government.

17. Following the circular flow of a mixed economy, which entity or entities distribute resources?
a. Firms only.
b. Input Markets only.
c. Government and Households.
d. Households and Input Markets.

18. When has the U.S. experienced government expenditures in the range of 40% to 50% of GDP?
a. 2000 to 2009.
b. 1950 to 1959.
c. 1940 to 1949.
d. It has never happened.

19. In 2008, which country listed below has the highest percentage of government spending relative to GDP?
a. France.
b. Ireland.
c. Japan.
d. Canada.

20. The old-age dependency ratio is:

a. the proportion of the population that is 60 years or older over the proportion of the population that is less
than 60 years of age.
b. the proportion of the population that is 65 years or older over the proportion of the population that is 15 to
64 years of age.
c. the proportion of the population that is 70 years or older over the proportion of the population that is 20 to
69 years of age.
d. the total government expenditure on programs for the elderly over the number of citizens that are 65 years
or older.
1. The normative approach to public finance prescribes certain actions to achieve predetermined criteria. (T)

2. Positive economic analysis is based on underlying value judgments. (F)

3. “The government should abolish tariffs to achieve efficiency” is a normative statement. (T)

4. It is possible for efficiency not to be attained even if all production is carried on without waste. (T)

5. Efficiency is attained when resources are used each year in such a way that no further net gain is possible.
(T)

6. The efficient annual output of any given good is attained if that good is made available in amounts up to
the point at which the total social benefit of the good equals the total social cost. (F)

7. If the marginal social benefit of smoke detectors exceeds its marginal social cost, then additional net gains
are possible from an increased annual smoke detector production. (T)

8. Monopoly power causes losses in efficiency because the marginal social benefit of output exceeds its
marginal social cost at the monopoly output. (T)

9. Government regulations that require airlines to serve routes for which the maximum price that passengers
are willing to pay for a trip fall short of the minimum price that sellers are willing to accept are likely to
cause losses in efficiency. (T)

10. Points lying below a utility possibility curve are efficient. (F)

11. Government programs can achieve efficiency when the gains to gainers from those policies exceed the
losses to those who bear the costs. (T)

12. If the marginal social cost of beer production exceeds its marginal social benefit, then more than the
efficient about of beer is being produced. (T)

13. Efficient outcomes are often viewed as inequitable. (T)

14. If it is not possible to make someone better off without harming another, then resource allocation is
efficient. (T)

15. Compensation criteria are used to argue that changes in resource allocation should be made if the gains
to some groups outweigh the losses to others, even though compensation for losses is not actually made. (T)

16. All points on a utility possibility curve are efficient but differ in terms of the distribution of wellbeing.
(T)

17. A tax on a product shifts the demand curve. (F)

18. A government subsidized price for a commodity that is higher than the market driven price results in
oversupply relative to the efficient allocation. (T)

19. When comparing the allocation of two goods relative to two consumers with individual utility functions,
multiple points of Pareto efficiency can exist. (T)
1. Positive economics:
a. makes recommendations designed to achieve certain goals.
b. establishes cause-and-effect relationships between economic variables.
c. is based on value judgments.
d. can never be used to make predictions.

2. If the efficient output of a good is produced each week, then the:

a. marginal social benefit of the good equals its marginal social cost each week.
b. marginal social benefit of the good is at a maximum.
c. total social benefit of the good is at a maximum.
d. total social benefit of the good equals its total social cost.

3. If the marginal social benefit of a good exceeds the marginal social cost at the current monthly output,
then:
a. it will be possible to make buyers of the good better off without harming sellers of the good.
b. it will be possible to make sellers of the good better off without harming buyers of the good.
c. either (a) or (b)
d. a reduction in monthly output will be required for efficiency.

4. The marginal social cost of bread exceeds the marginal social benefit at the current weekly output
Therefore,
a. the marginal net benefit of bread is positive.
b. the output of bread is efficient.
c. a reduction in weekly output of bread is necessary to achieve efficiency.
d. an increase in weekly output of bread is necessary to achieve efficiency.

5. The total social benefit of automobiles equals the total social cost at current annual output. Then it follows
that:
a. the annual output of automobiles is efficient.
b. the annual output of automobiles exceeds the efficient amount.
c. less than the efficient annual output of automobiles is produced.
d. it is not possible to make buyers of automobiles better off without harming sellers.
e. both (a) and (d)

6. Eggs are sold in a perfectly competitive market. No persons other than the buyers and sellers of eggs are
affected in any way when eggs are traded in the market. Then it follows that:
a. the price of eggs equals the marginal social cost of eggs.
b. the price of eggs equals the marginal social benefit of eggs.
c. the price of eggs exceeds the marginal social benefit of eggs.
d. both (a) and (b)

7. Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that:
a. the marginal social benefit of diamonds exceeds its marginal social cost.
b. the marginal social cost of diamonds exceeds its marginal social benefit.
c. the price of diamonds equals its marginal social cost.
d. the price of diamonds exceeds its marginal social benefit.
e. both (c) and (d)

8. Points on a utility possibility curve represent:

a. a given distribution of well-being between two persons.
b. an efficient allocation of resources.
c. the maximum well-being of any one person, given the resources available and the well-being
of another person.
d. all of the above
9. If efficiency has been attained,
a. it will be possible to make any one person better off without harming another.
b. it will not be possible to make any one person better off without harming another.
c. perfect competition must exist.
d. the opportunity cost of any change in resource use must be zero.

10. A move from an inefficient resource allocation to an efficient one:

a. will always be unanimously approved, even if gainers do not compensate losers.
b. will be unanimously opposed.
c. will be unanimously approved if gainers compensate losers.
d. can never result in losers.

11. Which of the following is a normative statement?

a. When interest rates rise, the quantity of loanable funds demanded for new mortgages will decline.
b. To achieve efficiency, governments should prevent monopoly in markets.
c. Unemployment increases during a recession.
d. When governments increase income tax rates, people work less.

12. Normative economics:

a. is not based on underlying value judgments.
b. makes recommendations to achieve efficient outcomes.
c. establishes cause-and-effect relationships between economic variables.
d. makes “if…then” type statements and checks them against the facts.

13. The extra benefit on one more unit of a good or service is its:
a. marginal cost.
b. marginal benefit.
c. total benefit.
d. total cost.

14. If the efficient output of computers is achieved this year, then market price of computers is equal to:
a. the marginal social benefit of computers.
b. the marginal social cost of computers.
c. the total social cost of computers.
d. the total social benefit of computers.
e. both (a) and (b)

15. Suppose the efficient output currently prevails in the market for ice cream. A tax on ice cream con
sumption will:
a. allow efficiency to continue to prevail in the market.
b. result in more than the efficient output in the market.
c. result in less than the efficient output in the market.
d. cause the marginal social cost of ice cream to exceed its marginal social benefit at the market equilibrium
output.

16. Positive economics is:

a. an equity based approach in which income should be redistributed.
b. an objective approach without a particular goal based on underlying values.
c. a goal oriented approach based on desired policy outcomes.
d. a belief that governments can implement economic policies for the greater good of society.

17. Normative economics is:

a. completely free of any value system.
b. completely objective.
c. based on a a conscious effort to implement a particular social goal.
d. an approach that determines the effect of particular actions without judgment of the result being good or
bad.

18. An efficient level of output means:

a. the total social benefit less the total social cost is maximized.
b. the total social benefit is below the total social cost.
c. the total social cost equals the total social benefit.
d. the total social benefit less the total social cost can be improved.

19. If a government desires to increase production beyond the current competitively determined efficient
level, the government should:
a. tax the good.
b. subsidize the good at a price higher than its current price.
c. set the price below its current price.
d. impose a fixed fee whenever the good is purchased.

20. Pareto efficiency between two consumers is achieved:

a. only when the individual marginal rates of substitution are equal to the marginal rate of transformation.
b. only when the individual marginal rates of substitution are less than one, but not necessarily equal.
c. only when the individual marginal rates of substitution are greater than one and equal.
d. only when the individual marginal rates of substitution are equal

1- If the cash deficit equals LE 50 billion, total revenues equals LE 100 billion, and the primary deficit
equals 25 billion, this means that interest payments equals… billion.
a. LE 75 billion
b. LE 25 billion
c. Zero
d. LE 50 billion

2- If net acquisition of financial assests equals LE 5 billion, cash deficit equals 55 billion, net privatization
proceeds equals zero, and debt repayment equals LE 20 billion. This implies that net borrowing equals:
a. LE 60 billion
b. LE 65 billion
c. LE 80 billion
d. 0

3- If total revenues equal 200 billion dollars and total expenditures equal 100 billion dollars, net acquisition
of financial assests equals(-25) billion dollars, and debt repayment equals 125 billion, and net privatization
proceeds equals zero, this means that total borrowing will be equal.. billion dollars
a. 150
b. 250
c. 50
d. Zero
4- The value of the market demand curve for camera installation corresponding to 2 cameras being installed
will be
a. 400
b. 950
c. 125
d. 100

5- If the marginal cost of installing a camera is LE 675, no matter how many are installed, then what is the
efficient number of cameras to have in this residential building?
a. 1
b. 2
c. 3
d. 4

6- How many cameras will be installed if the marginal cost of installing a camera was LE 1500 instead of
LE 675?
a. 0
b. 1
c. 2
d. 3

7- A proposal to dig a tunnel in the area of Cairo university is up for a vote. Voter”A” estimates that his
marginal benefit at the proposed level would be LE 2500. this voter will vote against the proposal:
A. No matter what his tax share
B. If his tax share is LE 2500
C. If his tax share is less than LE 2500
D. If his tax share exceeds LE 2500

8- Assuming a product can be manufactured competitively without any externalities at an efficient quantity
of 1500 units and an efficient price of LE 50 per unit. If however, this product yields a positive externality at
the above mentioned quantity- price point (1500 units, LE 50), what would be a possible efficient quantity-
price combination consistent with this scenario?
A. 1500 units, LE 60 per unit price
B. 1300 units, LE 45 per unit price
C. 1700 units, LE 40 per unit price
D. 1900 units, LE 59 per unit price

9- Imposing a tax on the sale of a perfectively competitive good leads to:

A. The production of less than the efficient quantity
B. The production of more than the efficient quantity
C. A negative MNB of the good
D. A and C
E. None of the above
10- Education is classified as
A. Pure private good
B. Price-excludablle public good
C. Congestible public good
D. Pure public good

11- Pure private goods are

A. Collectively consumed
B. Subject to low cost exclusion
C. Non-rival
D. Non of the above is true

12- Pure public goods are

A. Financed through taxes
B. Financed through revenues from market sales
C. Divisible
D. Excludable

13- The definition of the general government in Egypt includes

A. Services directorates
B. Public universities
C. Social insurance funds
D. All of the above
E. None of the above

17-a country with a real interest rate lower than its real GDP growth rate and with a negative primary
deficit-to-GDP ratio will experience
A. An increase in its debt to GDP ratio
B. A decrease in its debt GDP ratio
C. No change in its debt to GDP ratio
D. Not enough information to tell

18- Which of the following statements about Coase theorem is false?

A. It applies for small-number externalities
B. Transactions costs of exchanging the right to resource use close to zero
C. Bargaining among parties will achieve efficiency
D. None of the above

19- In Egypts state budget which of he following statements is considered correct

A. Total public expenditures comprise of 6 chapters
B. Total public revenues comprise of 3 chapters
C. Total public utilization comprise of 8 chapters
D. Total public resources comprise of 5 chapters
E. All of the above

20- Efficiency conditions for a pure public good are A

 21- If the average tax rate under a progressive tax rate structure is 40 %, a possible marginal tax rate is
A. 35%
B. 25%
C. 45%
D. Can not be determined

Assume that the equilibrium in the “Apples” market (Where MSC=MSB) is attained at E* (at which Q*
=4000KG and P* =5). if a tax of LE 2 per Kg, that is imposed by the government on producers of apples,
leads to a shift in the equilibrium to E ( at which Q =3000kg and P =LE 6)

22- The tax revenues collected by the government is this case equals
A. LE 6000
B. LE 5000
C. LE 8000
D. LE12000

23- The government intervention through the imposition of taxes in this case results into
A. Losses in net benefit
B. Gains in net benefits
C. Neither losses nor gains in net benefits
D. It depends on the behavior of the consumers and producers

24- The tax burden(incidence) in this example is

A. Shared by consumer and the producer
B. Incurred by the producer only
C. Incurred by the consumer only
D. Zero

25- The economic cost associated to the “tax” that is imposed by the government in this example
includes
A. The tax revenues collected by the government
B. The loss in efficiency resulting from the shift of the supply curve
C. Both a & b
D. The increase in net benefits resulting from the tax

26- According to the “ability to pay “ principle, the higher the benefits that individuals can obtain from
the government goods and services, the greater taxes they should pay F

27- There are mainly two alternatives for the government to control”tax evasion” either to increase the
marginal benefit of tax evasion or to reduce the marginal cost of tax evasion. F

28- The key player during the “ budget discussion and approval” phase of the budget cycle in Egypt is the
legislative authority ( parliament). T

29- In Egypt, there are numerical “ fiscal rules and targets” that govern the budget formulation process.T

30- The “ functional classification” of the state budget is the classification of the government
expenditures by chapters, groups and items. F

31- In Egypt, the non-publication of the central audit organization(CAO) reports weakens the
transparency of the state budget during the execution and evaluation phase. F
32-Local government revenues in Egypt represent relatively a high share of the total government
revenues indicating that there is a great extent of fiscal decentralization.

33-the government s purchase of machines and means of transportation is classified under chapter 7
“ acquisition of financial assets” of Egypt s state budget. F

34-the government s expenditure on social security programs like Takaful & Karama is classified under
the 5 expenditure chapter of the budget “other expenditure”F

35-The fines that the government collects from those who do not obey the traffic law are classified
under the first revenues chapter “taxes” F

36-cash deficit is greater than overall deficit when net acquisition of financial assets equals negative
value, while cash deficit is greater then primary deficit when interest payments equal positive value. T

37-In an economy where real interest rate (r) exactly equals real growth rate (g). the change in the debt-
to GDP ratio would solely depend on the value of primary deficit-to- GDP. T

38-in Egypt s state budget, the cash deficit equals the sum of net borrowing and net privatization
proceeds. F

39-The public sector in Egypt consists of the general government, economic authorities and state owned
enterprises. T

40-The public debt in Egypt in dominated by the domestic component. F

41-Financing the budget deficit through monetization “printing money” has no harmful effects on the
economy. F

42-Cash deficit equals overall deficit if and only if Net Acquisition of non-financial assets equals zero. F

43-At the efficient output level, the difference between TSB and TSC curves is minimized. F

44- A positive economic analysis implies presuppositions about what should be accomplished. F

45-The production possibility curve can be used to show the opportunity cost of increased government
activities in the economy. T

46-No citizen suffers a reduction in the quantity of nation defense when the population of a nation
increases, this refers to the “ non-excludability” property of national defense. F

47-According to the Neoclassical view, government budget deficits lead to higher interest rates by
increasing the supply of loanable funds.

48-If marginal tax rates were reduced from 255 to 22.5%, other things being equal, this is likely to
decrease the optimal level of tax evasion. T

49-Both of horizontal equity and vertical equity can be achieved in taxation if a progressive tax rate
structure is used .T
 50-A positive political externality will result from the gap between the Median Voter s most preferred
political outcome and the political equilibrium. F

1- At the efficient output level, the total net benefit from producing a good is
A. Zero
B. Maximized
C. Minimized
D. Negative
E. Uncertain

2- Taxes impair the operation of the economy because

A. Individuals make choices based on the tax advantages or disadvantages of their decisions
B. They affect consumption choices through affecting prices
C. They result in output loss
D. All of the above
E. None of the above

3- When resources are allocated to the production of a good so that its TSB equals its TSC, then the
quantity produced is
A. Efficient
B. More then the efficient quantity
C. Less than the efficient quantity
D. Equitable
E. Uncertain

4- If MSC of a T-shirt is $10, then suppliers would be better off when its market price is $11
A. True
B. False

5- If the maximum price that consumers are willing to pay for a good is greater than the minimum price
that sellers are willing to accept, then additional net gains are possible from reducing production of the
good.
A. True
B. False
A. Uncertain

6- When MNB=zero, efficiency is guaranteed.

A. True
B. False
B. Uncertain

7- When the price of books increases because more people starred to like reading, this imposes a negative
externality on a person whose hobby is reading.
A. True
B. False
C. Uncertain

8- When a negative externality exists, the MPC converges to the MSC.

D. True
E. False
F. Uncertain
1- It is clear from the above table that Egypt is supplying a proportional tax rate structure.F
2- The amount of taxes that taxpayer”A”, who earns LE 50000per year,would pay is LE 10000.F
3- Taxpayer “A” average tax rate (ATR) is 20%. F
4- In a progressive tax rate structure, ATR=MTR. F (proportional)
5- The marginal cost of making a given quantity of a congestible public good available to more consumers is
always zero.F
6- To internalize a negative externality, a corrective subsidy must be set equal to the marginal external cost.
F (corrective tax)
7- Despite that primary deficit could not be more than cash deficit, cash deficit might be more than overall
deficit. T
8- A voter most-preferred political outcome will change if, other things being equal, that person tax share
per unit of the public good is changed. T
9- Cash deficit equals overall deficit if and only if net acquisition of Non-financial assets equals zero.F
10- Diamonds are sold by a monopoly firm that maximizes profits. Then it follows that the marginal social
cost of diamonds exceeds its marginal social benefit. F
11- According to the “ ability to pay” principle, the higher the benefits that individuals obtain from the
government goods and services, the greater the taxes they should pay. F
12- Pure public goods can be distributed among individuals based on specific eligibility criteria like income,
age, and family status. T
13- The market demand for a pure private good is obtained by summing the individual demand curves
vertically. F
14- the old age dependency ratio is the ratio between the elderly and those who are employed. F
15- Externalities are costs or benefits of market transactions to third parties that are reflected in the market
prices. F
16- Total social benefit can be measured as the maximum amount of money given up by people to obtain
an extra unit of a good or services. F
17- Tax evasion would be reduced if audit rates were increased from 15% to 50%. T
18- The median voter is the one whose most-preferred outcome is the maximum value of the most
preferred outcomes of all those who are voting.F
23- In Egypt, marginal tax rates were reduced in 2010 from 25% to 22.5%. other things being equal, this is
likely to decrease the optimal level of tax evasion.T
24- If the marginal tax rate is 25% under a proportional tax rate structure, the average tax rate would be
below 25%. F
25- If a new law was introduced that changes the voting rule to be a “Unanimity rule”, both political
externalities and political transaction costs would not exist. F