The Common Exam Question, All of the Above.?

I've been bothered by these questions on tests my entire life, their ridiculous. Throughout High School teachers would label me as a smart *** for raising this point, but I was dead serious. Eventually taking the question to one of my college professors and convincing him of the ridiculous nature of these questions.

We have all seen them, but they usually go something like this:

Which of the following is in a city? (I know stupid but its an example)

A. People

B. Buildings

C. Governments

D. All of the Above

If I answer "B" I would get this question wrong on a test, but technically what is defined by answer "B" is in a city therefore making it a viable answer to the question. In fact, 100% of the answers were correct to that question

Does this academic idiocy bother anyone else? Surely I am not the first person to have this insight so why do teachers continue to belittle their intelligence by putting these questions on tests?