Question 1

In making the case against government, discuss the two main points about special interest groups.

Accepted Answer

Legislation that on the surface looks li

Question 2

A community of 100 persons wants to redistribute (transfer) some income from themselves to members of group A. So far, they don't seem to be able to do what they say they want to do. This is most likely because each member of the community of 100 persons sees his contribution as __________________ relative to the total (of contributions) and therefore chooses to be a __________________.

Accepted Answer

A) large; rent-seeker 
B) small; rent-seeker 
C) small; free rider 
D) large; free rider 
E) none of the above 
A) large; rent-seeker 
B) small; rent-seeker 
C) small; free rider 
D) large; free rider 
E) none of the above

Question 3

Government can overcome the free rider problem by taxing individuals and then using the tax proceeds to provide the nonexcludable public good itself.

Accepted Answer

A) True 
 B)False

Question 4

Consider a setting in which there is a negative externality, but no positive externality. It follows that

Accepted Answer

A) the market outcome is inefficient. 
B) the market outcome is efficient. 
C) MSC > MPC 
D) MPC > MSC 
E) a and c 
A) the market outcome is inefficient. 
B) the market outcome is efficient. 
C) MSC > MPC 
D) MPC > MSC 
E) a and c

Question 5

Tiffany gives $50 to Jeremy for his birthday. This is an example of a(n)

Accepted Answer

A) involuntary transfer. 
B) involuntary-voluntary transfer. 
C) voluntary transfer. 
D) gift. 
E) c and d 
A) involuntary transfer. 
B) involuntary-voluntary transfer. 
C) voluntary transfer. 
D) gift. 
E) c and d

Question 6

Which of the following statements is false?

Accepted Answer

A) Government can remove individuals from a prisoner's dilemma setting and make them better off. 
B) In a prisoner's dilemma setting, it is impossible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. 
C) As long as government charges each individual in a prisoner's dilemma setting a tax that is less than the gain received by being removed from the setting, then government has made the individuals better off. 
D) Depending upon the amount of the tax charged to each individual in a prisoner's dilemma setting, the government can make both persons better off, both persons worse off, or one person better off and the other person worse off. 
A) Government can remove individuals from a prisoner's dilemma setting and make them better off. 
B) In a prisoner's dilemma setting, it is impossible for the government to define and enforce property rights that the individuals involved in the setting want to have defined and enforced. 
C) As long as government charges each individual in a prisoner's dilemma setting a tax that is less than the gain received by being removed from the setting, then government has made the individuals better off. 
D) Depending upon the amount of the tax charged to each individual in a prisoner's dilemma setting, the government can make both persons better off, both persons worse off, or one person better off and the other person worse off.

Question 7

Economist A believes that the case for government is a strong one, but she doesn't always say, when it comes to negative externalities, that government can turn an inefficient market outcome into an efficient outcome. Which statement is economist A most likely to make?

Accepted Answer

A) If the tax placed on the activity that generates the negative externality is too large, we are not likely too move from inefficiency to efficiency. 
B) If the subsidy placed on the activity that generates the negative externality is too small, we are not likely to move from inefficiency to efficiency. 
C) If there is a free rider problem, then government cannot solve the problem of negative externalities. 
D) a and b 
E) none of the above 
A) If the tax placed on the activity that generates the negative externality is too large, we are not likely too move from inefficiency to efficiency. 
B) If the subsidy placed on the activity that generates the negative externality is too small, we are not likely to move from inefficiency to efficiency. 
C) If there is a free rider problem, then government cannot solve the problem of negative externalities. 
D) a and b 
E) none of the above

Question 8

The market will _______________ a good that generates a positive externality (and no concurrent negative externality) because the market will fail to voluntarily include the marginal _______________ in its calculations.

Accepted Answer

A) underproduce; external benefits 
B) underproduce; social benefits 
C) overproduce; external benefits 
D) overproduce; external costs 
E) underproduce; external costs 
A) underproduce; external benefits 
B) underproduce; social benefits 
C) overproduce; external benefits 
D) overproduce; external costs 
E) underproduce; external costs

Question 9

The market will _______________ a good that generates a negative externality (and no concurrent positive externality) because the market will fail to voluntarily include the marginal _______________ in its calculations.

Accepted Answer

A) underproduce; external benefits 
B) underproduce; social benefits 
C) overproduce; external benefits 
D) overproduce; external costs 
E) underproduce; external costs 
A) underproduce; external benefits 
B) underproduce; social benefits 
C) overproduce; external benefits 
D) overproduce; external costs 
E) underproduce; external costs

Question 10

Because special interest groups tend to favor transfer policies rather than economic growth policies, many economists believe that these special interest groups help to improve economic efficiency.

Accepted Answer

A) True 
 B)False

Question 11

Situation 35-2
​
Dan and Ann live in the same community and both can participate in two activities, producing and stealing.
-Refer to Situation 35-2. Ann spends 8 hours of each day producing and 1 hour of each day stealing. It is probably the case for her that

Accepted Answer

A) at some point the MB/MC ratio for producing fell below the MB/MC ratio for stealing. 
B) her MB/MC ratio for producing was always greater than her MB/MC ratio for stealing. 
C) her MB/MC ratio for producing never changed, no matter how much or how little she produced. 
D) her MB/MC ratio for stealing never changed, no matter how much or how little she stole. 
E) There is not enough information to answer the question. 
A) at some point the MB/MC ratio for producing fell below the MB/MC ratio for stealing. 
B) her MB/MC ratio for producing was always greater than her MB/MC ratio for stealing. 
C) her MB/MC ratio for producing never changed, no matter how much or how little she produced. 
D) her MB/MC ratio for stealing never changed, no matter how much or how little she stole. 
E) There is not enough information to answer the question.

Question 12

The federal government and many state governments gave tax credits to first-time home buyers in 2009 and 2010. An effect of these tax credits was to

Accepted Answer

A) make the price of houses higher than they would have been without the tax credit. 
B) lower house prices. 
C) shift the demand curve for houses leftward. 
D) b and c 
E) none of the above 
A) make the price of houses higher than they would have been without the tax credit. 
B) lower house prices. 
C) shift the demand curve for houses leftward. 
D) b and c 
E) none of the above

Question 13

Describe the intended effects of the first-time home buyer tax credits granted by Congress and many state governments in 2009 and 2010. In addition, describe in detail the unintended effect of this type of legislation.

Accepted Answer

The bills were intended to stimulate the

Question 14

Special interest group K receives a 1/1,000th slice of the economic pie. Its net benefit from either an economic growth policy or a transfer policy is $200,000. In order for group K to be indifferent between the two policies, the economic growth policy would have to make the size of the economic pie (Real GDP) grow by _________________. This type of analysis is used to show that special interest groups tend to press government for ______________ instead of ________________.

Accepted Answer

A) $200,000,000; economic growth; transfers 
B) $20,000,000; economic growth; transfers 
C) $200,000,000; transfers; economic growth 
D) $20,000,000; transfers; economic growth 
E) none of the above 
A) $200,000,000; economic growth; transfers 
B) $20,000,000; economic growth; transfers 
C) $200,000,000; transfers; economic growth 
D) $20,000,000; transfers; economic growth 
E) none of the above

Question 15

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome. Under what condition will the solution (the subsidy) be worse than the problem (the market failure)?

Accepted Answer

A) Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality). 
B) Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
C) Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
D) Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality). 
E) none of the above 
A) Under the condition that the subsidy is greater than the marginal external benefit (associated with the positive externality). 
B) Under the condition that the post-subsidy output is not farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
C) Under the condition that the post-subsidy output is farther away from the efficient level of output than the pre-subsidy output is from the efficient level of output. 
D) Under the condition that the subsidy is less than the marginal external benefit (associated with the positive externality). 
E) none of the above

Question 16

Suppose that for Alicia the marginal benefit (MB) of producing is $75 and that the marginal cost (MC) of producing is $5. Suppose also that her marginal benefit of stealing is $85 and the marginal cost of stealing is $5. Is Alicia currently maximizing utility in terms of producing and stealing? If not, should she produce more and steal less, or produce less and steal more to move toward utility maximization?

Accepted Answer

A) Yes, Alicia is maximizing utility. 
B) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should produce more and steal less. 
C) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Alicia should produce more and steal less. 
D) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should steal more and produce less. 
A) Yes, Alicia is maximizing utility. 
B) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should produce more and steal less. 
C) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is greater than the MB/MC ratio for stealing, Alicia should produce more and steal less. 
D) No, Alicia is not maximizing utility.Since the MB/MC ratio for producing is less than the MB/MC ratio for stealing, Alicia should steal more and produce less.

Question 17

The answer is, "Because of the free rider problem." The question is:

Accepted Answer

A) Why can't the government produce nonexcludable public goods? 
B) Why can't the market produce nonexcludable public goods? 
C) Why do negative externalities exist? 
D) Why do positive externalities exist? 
E) b and d 
A) Why can't the government produce nonexcludable public goods? 
B) Why can't the market produce nonexcludable public goods? 
C) Why do negative externalities exist? 
D) Why do positive externalities exist? 
E) b and d

Question 18

In the case of a negative externality, the government can use a ________________ to turn an inefficient outcome into an efficient one. In the case of a positive externality, the government can use a ________________ to turn an inefficient outcome into an efficient one.

Accepted Answer

A) tax; subsidy 
B) subsidy; tax 
C) tax; tax 
D) subsidy; subsidy 
A) tax; subsidy 
B) subsidy; tax 
C) tax; tax 
D) subsidy; subsidy

Question 19

Special interest group A receives a 1/10,000th slice of the economic pie (Real GDP). It is seeking a transfer of $1,000. For group A to be indifferent between a transfer policy and an economic growth policy, economic growth must be ________________ times larger than the _________________.

Accepted Answer

A) 1,000; transfer 
B) 10,000; transfer 
C) 100; transfer 
D) 10,000; transfer minus $1,000 
E) 1,000; transfer; minus $10,000 
A) 1,000; transfer 
B) 10,000; transfer 
C) 100; transfer 
D) 10,000; transfer minus $1,000 
E) 1,000; transfer; minus $10,000

Question 20

Involuntary transfers are the type of transfers used in the case against government.

Accepted Answer

A) True 
 B)False

Exam 35: The Economic Case for and Against Government Five Topics Considered

In making the case against government, discuss the two main points about special interest groups.

Government can overcome the free rider problem by taxing individuals and then using the tax proceeds to provide the nonexcludable public good itself.

Consider a setting in which there is a negative externality, but no positive externality. It follows that

Tiffany gives $50 to Jeremy for his birthday. This is an example of a(n)

Which of the following statements is false?

Economist A believes that the case for government is a strong one, but she doesn't always say, when it comes to negative externalities, that government can turn an inefficient market outcome into an efficient outcome. Which statement is economist A most likely to make?

The market will _______________ a good that generates a positive externality (and no concurrent negative externality) because the market will fail to voluntarily include the marginal _______________ in its calculations.

The market will _______________ a good that generates a negative externality (and no concurrent positive externality) because the market will fail to voluntarily include the marginal _______________ in its calculations.

Because special interest groups tend to favor transfer policies rather than economic growth policies, many economists believe that these special interest groups help to improve economic efficiency.

Situation 35-2 ​ Dan and Ann live in the same community and both can participate in two activities, producing and stealing. -Refer to Situation 35-2. Ann spends 8 hours of each day producing and 1 hour of each day stealing. It is probably the case for her that

The federal government and many state governments gave tax credits to first-time home buyers in 2009 and 2010. An effect of these tax credits was to

Describe the intended effects of the first-time home buyer tax credits granted by Congress and many state governments in 2009 and 2010. In addition, describe in detail the unintended effect of this type of legislation.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about an efficient outcome. Under what condition will the solution (the subsidy) be worse than the problem (the market failure)?

The answer is, "Because of the free rider problem." The question is:

In the case of a negative externality, the government can use a ________________ to turn an inefficient outcome into an efficient one. In the case of a positive externality, the government can use a ________________ to turn an inefficient outcome into an efficient one.

Special interest group A receives a 1/10,000th slice of the economic pie (Real GDP). It is seeking a transfer of $1,000. For group A to be indifferent between a transfer policy and an economic growth policy, economic growth must be ________________ times larger than the _________________.

Involuntary transfers are the type of transfers used in the case against government.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

Stocks Bonds Futures and Options

Filters

The market will _ a good that generates a positive externality (and no concurrent negative externality) because the market will fail to voluntarily include the marginal _ in its calculations.

The market will _ a good that generates a negative externality (and no concurrent positive externality) because the market will fail to voluntarily include the marginal _ in its calculations.

Situation 35-2 Dan and Ann live in the same community and both can participate in two activities, producing and stealing. -Refer to Situation 35-2. Ann spends 8 hours of each day producing and 1 hour of each day stealing. It is probably the case for her that

In the case of a negative externality, the government can use a to turn an inefficient outcome into an efficient one. In the case of a positive externality, the government can use a to turn an inefficient outcome into an efficient one.

Special interest group A receives a 1/10,000^th slice of the economic pie (Real GDP). It is seeking a transfer of $1,000. For group A to be indifferent between a transfer policy and an economic growth policy, economic growth must be times larger than the _.