Engineering Economics, 5e (Fraser)
Chapter 10 Public Sector Decision Making
10.1 Multiple Choice Questions
1) Engineering decisions associated with public projects should be based on
A) market costs and benefits.
B) environmental costs and benefits.
C) marginal willingness to pay.
D) marginal costs and benefits.
E) social costs and
benefits. Answer: E
Diff: 1 Type: MC Page Ref: 348-350
Topic: 10.1. Introduction
Skill: Recall
User1: Qualitative
2) In cost-benefit analysis associated with public projects, all costs and benefits should be evaluated
in terms of
A) market values.
B) social values.
C) marginal willingness to pay.
D) market supply and demand.
E) profitability.
Answer: B
Diff: 2 Type: MC Page Ref: 348-350
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
3) Which of the following is an advantage of the modified benefit-cost ratio as compared with the
conventional benefit-cost ratio?
A) It includes social costs.
B) It includes the effects of inflation.
C) It provides a measure of the net gain per dollar invested by the project sponsor.
D) It is easier to calculate.
E) It includes the effects of
taxation. Answer: D
Diff: 2 Type: MC Page Ref: 357
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
1
,4) What economic conditions underlie market failures?
A) External costs are greater than private costs.
B) There is environmental damage which is addressed by environmental tax.
C) There is a monopolist who sets the price equal to the marginal cost.
D) All costs are born by market participants.
E) Aggregate benefits to all persons are less than aggregate costs
imposed. Answer: E
Diff: 2 Type: MC Page Ref: 347
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
5) The hedonic price method is a way of setting a value on a social good based on:
A) how much people say they value that good when surveyed.
B) how much an ideally rational individual would pay for that good.
C) the popularity of a political party that advocates that good.
D) how much it would cost the government to provide a substitute for that good.
E) how much people are prepared to pay to acquire that good.
Answer: E
Diff: 3 Type: MC Page Ref: 355
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
6) Which of the following is an example of a remedy for a market failure?
A) building a refinery
B) building a hospital
C) building an assembly plant
D) building an apartment complex
E) building a movie
theatre Answer: B
Diff: 3 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Applied
User1: Qualitative
7) How should market failures be addressed?
A) through the establishment of barriers to enter the market
B) through the replacement of social equilibrium by market equilibrium
C) through free market interactions between consumers and producers
D) through government intervention and the courts
E) through market
deregulations Answer: D
Diff: 1 Type: MC Page Ref: 348
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
2
, 8) What is contingent valuation?
A) assigning a value to an intangible good based on the results of surveys
B) assigning a value to an intangible good based on how much people will pay to obtain it
C) assigning a value to an intangible good based on its historical price
D) assigning a value to an intangible good based on its price in an ideal free market
E) assigning a value to an intangible good based on what it would cost to provide a substitute for
it Answer: A
Diff: 2 Type: MC Page Ref: 354
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
9) An environmental tax is an example of
A) a policy regulation.
B) a government takeover.
C) a financial incentive or deterrent.
D) a legal response.
E) a market
failure. Answer: C
Diff: 1 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
10) One of the following is a fundamental difference between financial analysis and BCA. Which one?
A) Inflation is not included in BCA.
B) Tax effects are not included in BCA.
C) Time value of money is not reflected in BCA.
D) Operating costs are not included in BCA.
E) Capital costs are not included in BCA.
Answer: B
Diff: 2 Type: MC Page Ref: 349-356
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
11) When a community puts pressure on a municipal government to preserve the municipal park, this is
an example of
A) regulation.
B) command and control policies.
C) monetary incentives.
D) litigation.
E) informal
methods. Answer: E
Diff: 2 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
3
Chapter 10 Public Sector Decision Making
10.1 Multiple Choice Questions
1) Engineering decisions associated with public projects should be based on
A) market costs and benefits.
B) environmental costs and benefits.
C) marginal willingness to pay.
D) marginal costs and benefits.
E) social costs and
benefits. Answer: E
Diff: 1 Type: MC Page Ref: 348-350
Topic: 10.1. Introduction
Skill: Recall
User1: Qualitative
2) In cost-benefit analysis associated with public projects, all costs and benefits should be evaluated
in terms of
A) market values.
B) social values.
C) marginal willingness to pay.
D) market supply and demand.
E) profitability.
Answer: B
Diff: 2 Type: MC Page Ref: 348-350
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
3) Which of the following is an advantage of the modified benefit-cost ratio as compared with the
conventional benefit-cost ratio?
A) It includes social costs.
B) It includes the effects of inflation.
C) It provides a measure of the net gain per dollar invested by the project sponsor.
D) It is easier to calculate.
E) It includes the effects of
taxation. Answer: D
Diff: 2 Type: MC Page Ref: 357
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
1
,4) What economic conditions underlie market failures?
A) External costs are greater than private costs.
B) There is environmental damage which is addressed by environmental tax.
C) There is a monopolist who sets the price equal to the marginal cost.
D) All costs are born by market participants.
E) Aggregate benefits to all persons are less than aggregate costs
imposed. Answer: E
Diff: 2 Type: MC Page Ref: 347
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
5) The hedonic price method is a way of setting a value on a social good based on:
A) how much people say they value that good when surveyed.
B) how much an ideally rational individual would pay for that good.
C) the popularity of a political party that advocates that good.
D) how much it would cost the government to provide a substitute for that good.
E) how much people are prepared to pay to acquire that good.
Answer: E
Diff: 3 Type: MC Page Ref: 355
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
6) Which of the following is an example of a remedy for a market failure?
A) building a refinery
B) building a hospital
C) building an assembly plant
D) building an apartment complex
E) building a movie
theatre Answer: B
Diff: 3 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Applied
User1: Qualitative
7) How should market failures be addressed?
A) through the establishment of barriers to enter the market
B) through the replacement of social equilibrium by market equilibrium
C) through free market interactions between consumers and producers
D) through government intervention and the courts
E) through market
deregulations Answer: D
Diff: 1 Type: MC Page Ref: 348
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
2
, 8) What is contingent valuation?
A) assigning a value to an intangible good based on the results of surveys
B) assigning a value to an intangible good based on how much people will pay to obtain it
C) assigning a value to an intangible good based on its historical price
D) assigning a value to an intangible good based on its price in an ideal free market
E) assigning a value to an intangible good based on what it would cost to provide a substitute for
it Answer: A
Diff: 2 Type: MC Page Ref: 354
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
9) An environmental tax is an example of
A) a policy regulation.
B) a government takeover.
C) a financial incentive or deterrent.
D) a legal response.
E) a market
failure. Answer: C
Diff: 1 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
10) One of the following is a fundamental difference between financial analysis and BCA. Which one?
A) Inflation is not included in BCA.
B) Tax effects are not included in BCA.
C) Time value of money is not reflected in BCA.
D) Operating costs are not included in BCA.
E) Capital costs are not included in BCA.
Answer: B
Diff: 2 Type: MC Page Ref: 349-356
Topic: 10.3. Decision making in the public
sector Skill: Recall
User1: Qualitative
11) When a community puts pressure on a municipal government to preserve the municipal park, this is
an example of
A) regulation.
B) command and control policies.
C) monetary incentives.
D) litigation.
E) informal
methods. Answer: E
Diff: 2 Type: MC Page Ref: 348-349
Topic: 10.2. Market failures
Skill: Recall
User1: Qualitative
3
