Chapter 10
Educational Reform: The Role of Incentives and Choice
True/False Questions
1. The TIMSS is a comparison of mathematics and science achievement in the participating
nations.
ANSWER: F
2. The U.S. outperforms most nations in science, but lags behind most nations in math.
ANSWER: F
3. Only Switzerland spends more per pupil than the U.S.
ANSWER: T
4. Since 1969, spending per pupil in the U.S. has remained constant, but achievement scores have
fallen.
ANSWER: F
5. According to Hanushek, a leading authority on the economics of education, there is widespread
evidence that we should expand traditional resources to education.
ANSWER: F
6. At low rates of graduation, there are probably no external benefits associated with increasing the
rate.
ANSWER: F
7. Our society provides secondary education with no charge for tuition probably because of the
ideal of equal opportunity.
ANSWER: T
8. Economists do not believe that students are capable of comparing the marginal benefits of
academic achievement to the appropriate marginal costs of achievement.
ANSWER: F
9. Aggregate student rewards from additional effort are subject to decreasing marginal benefits.
ANSWER: T
10. The equilibrium level of student achievement occurs when marginal benefits of achievement are
greater than marginal costs of achievement.
ANSWER: F
11. Lost wages from a part-time job might be one opportunity cost associated with academic
achievement.
ANSWER: T
12. If driving privileges were contingent on academic achievement, this would increase the
perceived benefits of achievement.
ANSWER: T
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392  Chapter 10/Educational Reform: The Role of Incentives and Choice
13. It would be appropriate to grade a high-stakes test on a “curve.”
ANSWER: F
14. In high stakes testing, student performance on achievement tests could affect grade promotion,
high school graduation, and even employment.
ANSWER: T
15. Using achievement scores to make grade promotion and graduation decisions raises the stakes
associated with achievement from the teacher’s point of view, but does not affect the perceived
benefits for the student.
ANSWER: F
16. Because large benefits are expected to be gained through high-stakes testing, the U.S. school
system should definitely adopt the practice.
ANSWER: F
17. The policy of requiring more courses as a condition of graduation has been politically popular,
but economists don’t expect it to raise achievement levels.
ANSWER: T
18. Learning how to ride a bicycle requires specific knowledge because it must be learned through
trial and error.
ANSWER: T
19. General knowledge tends to be difficult or costly to transmit to another person.
ANSWER: F
20. Markets automatically reward good decisions with increased wealth.
ANSWER: T
21. Of the three principles of the economic approach to organization, the U.S. system of public
education is consistent with just one of the principles.
ANSWER: F
22. The text compares the 50 state departments of education to 50 state owned enterprises (SOEs).
ANSWER: T
23. Teachers in the U.S. must operate in a system where government interferes with their
professional judgment by imposing mandates and non-academic objectives.
ANSWER: T
24. A state department of education (SDE) is apt to be politicized and be responsive to special
interest groups as well as to school children and their parents.
ANSWER: T
25. Education special interest groups include the teachers’ union, environmental organizations, and
other organizations promoting ideological and religious ends.
ANSWER: T
Test Bank  393
Multiple-Choice Questions
1. Of the participating countries in the TIMSS study:
a. the Netherlands was ranked first and the U.S. was ranked last.
b. the U.S. was ranked near the bottom in both math and science.
c. the U.S. was ranked near the bottom in science but performed somewhat better in math.
d. the U.S. was ranked near the top in both math and science.
ANSWER: b
2. Of the participating countries in the TIMSS study:
a. the Netherlands has the lowest spending per pupil but posted the highest scores in math.
b. spending per pupil appears to have an important positive impact on math scores.
c. the U.S. does not spend any more per pupil than the other countries.
d. Switzerland spends more per pupil in math and posted the highest scores in math.
ANSWER: a
3. Which country spends more per pupil than the United States?
a. Switzerland
b. Netherlands
c. France
d. None, U.S. is the highest spending nation.
ANSWER: a
4. Which is a possible reason why the decline in the pupil-teacher ratio in the U.S. did not increase
achievement?
a. Because of low salaries offered to teachers, the instruction was of low quality.
b. More instructional resources were devoted to special education.
c. Resources were shifted from instruction to capital improvements such as new buildings.
d. None of the above. The declining pupil-teacher ratio has had the desired effect of increasing
achievement in the U.S.
ANSWER: b
5. Which statement best describes the conclusions of expert, Eric Hanushek?
a. Studies of class size and pupil-teacher ratios lend very little support to policies aimed at
expanding these resources.
b. Studies of class size and pupil-teacher ratios indicate that these variables are currently at
efficient levels in the U.S.
c. Studies indicate that funds should be spent in order to decrease pupil-teacher ratios even
further in the U.S.
d. The problem of low achievement in the U.S. could be solved by reallocating resources from
other government programs to public education.
ANSWER: a
6. Which is probably true about the U.S. educational system?
a. Graduation rates are so low, that large external benefits could be realized by increasing the
rate.
b. Graduation rates are high enough that external benefits associated with increasing the rate
even further are probably very small or non-existent.
c. External benefits are a strong argument for free secondary education in the U.S.
d. None of the above.
ANSWER: b
394  Chapter 10/Educational Reform: The Role of Incentives and Choice
7. The hope that equal opportunity combined with voluntary exchange will move people toward
equality is called:
a. commutative justice.
b. the principle of economic organization.
c. distributive justice.
d. the automatic market response to inequality.
ANSWER: c
8. Justice that emerges from voluntary exchange is called:
a. commutative justice.
b. distributive justice.
c. equal opportunity.
d. the principle of economic organization.
ANSWER: a
9. Which best describes the beliefs of Thomas Jefferson and Adam Smith concerning public
education?
a. Smith and Jefferson had not yet developed the ideas of achievement standards.
b. Smith and Jefferson believed that primary education should be free to all.
c. Both Smith and Jefferson believed that primary education should be compulsory.
d. Smith and Jefferson would probably have approved of a “mixed” K-12 system that included
private and public schools, as well as home-schooling.
ANSWER: d
10. Which of the following might students perceive as benefits from additional academic
achievement?
a. promotion
b. graduation
c. college admission
d. all of the above
ANSWER: d
11. Which of the following statements is correct?
a. Students will increase effort toward academic achievement as long as the marginal benefits
of achievement are greater than the marginal costs.
b. In the aggregate, the marginal benefit of achievement will increase as more effort is devoted
to achievement.
c. Students’ effort toward achievement is not related to marginal benefits and costs.
d. Aggregate student achievement is not subject to increasing marginal costs.
ANSWER: a
12. Many public colleges and universities base admissions on:
a. ACT scores
b. high school grade point average (GPA)
c. rank in high school graduating class
d. all of the above
ANSWER: d
Test Bank  395
13. Which is not a characteristic of high-stakes testing?
a. universal
b. based on absolute performance standards
c. based on memorization
d. internationally referenced
ANSWER: c
14. An absolute grading scale for high stakes test:
a. is based on an external standard.
b. prevents teachers from judging students relative to their classmates.
c. would strengthen the incentive for students to perform well.
d. all of the above.
ANSWER: d
15. Why do achievement tests need to have their “stakes” risen?
a. The higher stakes create a prospect of greater rewards, which causes students to increase
their effort toward academic achievement.
b. Higher stakes will mean bigger rewards for teachers whose students score high on
achievement tests.
c. Actually, requiring more courses in math and science is a more promising policy for
increasing achievement.
d. Higher stakes achievement tests will require that students only work a limited number of
hours per week.
ANSWER: a
16. Which statement about the 1989 national mathematics standards is correct?
a. The standards have had very little impact on how mathematics is taught.
b. The standards emphasize computation and memorization.
c. The standards emphasize problem-solving and hands-on activities.
d. The standards recommend dividing students into groups (college bound v. non-college
bound).
ANSWER: c
17. Which statement about the benefits and costs of high-stakes testing is correct?
a. Benefits clearly outweigh costs
b. The tests should be adopted on the basis of their high expected benefits.
c. The costs are believed to outweigh the benefits.
d. The size of benefits relative to costs is unknown.
ANSWER: d
18. In Japan:
a. authorities are considering the use of high-stakes tests.
b. national exams have very high stakes associated with them.
c. high-stakes testing is considered a failure.
d. none of the above.
ANSWER: b
396  Chapter 10/Educational Reform: The Role of Incentives and Choice
19. Which of the following is a reason why estimates of additional earnings to gained from
high-stakes testing is probably understated?
a. The estimates already reflect earnings attributable to on-the-job training.
b. The estimates already reflect earnings differentials realized through college attendance.
c. The estimates are based on data from low-stakes environments.
d. All of the above are reasons.
ANSWER: c
20. Which is true about the policy of requiring more courses as a condition for graduation?
a. The policy has widespread popularity.
b. Economists question whether the policy will be effective.
c. Economists question whether the government should specify any approach.
d. All of the above are true.
ANSWER: d
21. Which of the following is true about privatization?
a. Privatizing agriculture in China was not productive.
b. The U.S. is not encouraging formerly socialist countries to privatize such basic functions as
the supply of food.
c. According to Milton Friedman, it seems odd that the U.S. rejects the idea of privatizing the
school system.
d. Privatization would not introduce market incentives into the U.S. educational system.
ANSWER: c
22. Like many other government protected monopolies, the U.S. educational system:
a. operates at minimum cost.
b. wastes a good deal of its resources.
c. does not want to increase output (achievement).
d. is consistent with the principles of economic organization.
ANSWER: b
23. Knowledge that can be easily transferred to another person is called:
a. general knowledge
b. specific knowledge.
c. tacit knowledge.
d. rewarded knowledge.
ANSWER: a
24. Knowledge that is gained as members of an organization interact is called:
a. general knowledge.
b. specific knowledge.
c. tacit knowledge.
d. assembled knowledge.
ANSWER: d
25. Which is not a kind of specific knowledge discussed in the text?
a. historical knowledge
b. assembled knowledge
c. tacit knowledge
d. local knowledge
ANSWER: a
Test Bank  397
26. Which is not a principle of economic organization?
a. Markets automatically assign decision rights to those with the most useful specific
knowledge.
b. Markets automatically subsidize government owned enterprises.
c. Markets automatically evaluate decisions, using profitability as a performance measure.
d. Markets automatically reward good decisions.
ANSWER: b
27. Which statement is true?
a. School districts do not have many characteristics in common with a large organization.
b. School districts are consistent with the three principles of economic organization.
c. A state department of education can be thought of as the central planning office of a
state-owned enterprise.
d. None of the above are true.
ANSWER: c
28. A 1993 survey shows that parents of most of the students in private schools were:
a. not satisfied with the school and their academic standards.
b. somewhat satisfied with the school and their academic standards.
c. very satisfied with the school and their academic standards.
d. very unsatisfied with the school and their academic standards.
ANSWER: c
29. Which of the following is a non-academic objective that teachers are often expected to achieve?
a. school district population growth
b. national mathematics standards
c. developing a drug-free America
d. All of the above
ANSWER: c
30. What are some benefits of introducing competition into the public school system?
a. Schools would not have to respond to the demand of parents.
b. Schools would have to evaluate teachers based on their success with students.
c. Schools would not have to be concerned about over-spending.
d. All of the above.
ANSWER: b
31. Which of the following are benefits of introducing competition into the public school system?
a. Competition could cause schools to reduce costs.
b. Competition could cause schools to improve the schooling they offer.
c. Parents would be allowed to choose schools on the basis of their reputation in motivating
students to succeed academically.
d. All of the above.
ANSWER: d
398  Chapter 10/Educational Reform: The Role of Incentives and Choice
Critical Thinking Multiple-Choice Questions
32. According to economists, which policies have the potential to increase achievement in U.S.
public schools?
a. competition among schools.
b. high-stakes testing.
c. requiring more courses in math and science.
d. both a and b
ANSWER: d
Use the following diagram to answer questions
Price per Unit
MSB
D=MPB
S1 = MSC 1
S2 = MSC 2
D=MPB=MSB
E1
E2
E3 E4
Quantity of Education
per time Period
33. External benefits exist for all levels of education less than quantity:
a. E1
b. E3
c. E2
d. E4
ANSWER: b
34. If marginal social costs are equal to MSC1, what is the efficient quantity of education?
a. E4
b. E3
c. E2
d. E1
ANSWER: c
Test Bank  399
35. If marginal social costs are equal to MSC1, what is the equilibrium quantity of education that will
be chosen by individuals?
a. E2
b. E1
c. E4
d. E3
ANSWER: b
36. When marginal social costs are equal to MSC1:
a. the equilibrium quantity < socially efficient quantity.
b. the equilibrium quantity > socially efficient quantity.
c. the equilibrium quantity = socially efficient quantity.
d. the argument for government subsidization is weaker than it would be if marginal social
costs were equal to MSC2.
ANSWER: a
37. When marginal social costs are equal to MSC2, what is the equilibrium level of education?
a. E1
b. E2
c. E3
d. E4
ANSWER: d
38. When marginal social costs are equal to MSC2, which is true?
a. The socially efficient level of education = the equilibrium quantity of education.
b. There are no additional external benefits associated with more education.
c. There is not a compelling argument for government subsidization of education.
d. All of the above.
ANSWER: d
39. Susie has been earning better grades this semester, but feels that any further improvements will
cause her to have to reduce her hours worked at a part time job.
a. Susie believes that increasing her academic standing will cause her marginal costs
b. Susie is not making a rational decision.
c. If the marginal benefits of achievement were to increase for Susie, she still would not
attempt to improve her academic standing.
d. With respect to academic achievement, Susie’s MB > MC
ANSWER: a
400  Chapter 10/Educational Reform: The Role of Incentives and Choice
Use the following diagram to answer questions 40 – 42.
Dollars
MCA
MBA1
MBA2
A1
A2
Achievement
40. High-stakes testing is incorporated into public schools, what might be the expected result?
a. Marginal benefits shift from MBA1 to MBA2.
b. Achievement declines from A2 to A1.
c. No change is predicted..
d. Marginal benefits shift from MBA2 to MBA1.
ANSWER: d
41. Assume marginal benefits are equal to MBA1.
a. Because A1 > A2
b. Because MBA1 > MBA2
c. The marginal cost curve (MCA) is upward sloping.
d. There is no way to tell..
ANSWER: c
42. Assume the marginal benefits of achievement are equal to MBA1.
a. MBA1
b. MBA2
c. A1
d. A2
ANSWER: d
43. Making driving privileges contingent upon academic performance:
a. will increase the marginal benefits of achievement.
b. will decrease the marginal benefit of achievement.
c. will probably not affect marginal benefit of achievement.
d. will likely cause achievement levels to fall.
ANSWER: a
Test Bank  401
44. If the number of hours that teens could legally work per week was limited, the result would be:
a. increases in the opportunity cost of achievement.
b. reductions in the opportunity cost of achievement.
c. increases in the marginal benefit of achievement.
d. decreases in the marginal benefit of achievement.
ANSWER: b
45. Which of the following will make it more likely that a student will study harder?
a. Colleges are willing to correct deficiencies through remedial courses.
b. Graduation from high school, by itself, is sufficient for admission to most colleges.
c. Employers begin to use school performance as a criterion for hiring.
d. It is highly unlikely that students will be required to repeat a grade.
ANSWER: c
46. Which of the following is considered a problem with multiple choice achievement tests?
a. They are limited in their ability to measure analytical skills.
b. They are easy to grade.
c. They are not subject to manipulation by teachers.
d. There are no major problems with multiple choice tests.
ANSWER: a
47. Cindy says that she really has to work with a new software application for several weeks before
she will understand it.
a. local knowledge.
b. assembled knowledge.
c. tacit knowledge.
d. general knowledge.
ANSWER: c
48. Thomas is a college freshman, and this is his first day on campus.
a. local knowledge of the campus.
b. assembled knowledge of the campus.
c. scientific knowledge of the campus.
d. general knowledge of the campus.
ANSWER: a
49. David decides to market a new product.
a. how markets automatically decentralize decision making.
b. how markets fail to out weed inferior products.
c. how markets violate the principles of organization.
d. how markets automatically reward those who make good decisions.
ANSWER: d
50. Teacher performance is often irrelevant in their salary determination.
a. Markets automatically assign decision rights to those with the most useful specific
information.
b. Market automatically evaluate decisions.
c. Markets automatically reward good decisions.
d. None of the above.
ANSWER: c
402  Chapter 10/Educational Reform: The Role of Incentives and Choice
51. State departments of education typically establish ground rules for curriculum and textbooks.
a. Markets automatically assign decision rights to those with the most useful specific
information.
b. Market automatically evaluate decisions.
c. Markets automatically reward good decisions.
d. None of the above.
ANSWER: a
Essay and Discussion Questions
1. Among the participating countries in the TIMSS study, discuss the relationship between
per pupil spending and academic achievement. What are the two arguments for
government support of secondary education? Describe the concept of high-stakes testing.
Using examples, describe how the U.S. system of public education is inconsistent with each
of the principles of organization.
The student should, of course, be familiar with the three economic principles of organization and
understand how centralized mandates from state departments of education take the
decision-making away from those with the most useful specific knowledge–namely the teachers,
principals, and parents. Evaluation of the system is provided by the centralized planners and is
not necessarily consistent with what parents want for their children. The reward system in our
schools does not reward or even encourage excellence.