Question 1

The special-interest effect is one that yields

Accepted Answer

A)  private beneﬁts equal to external beneﬁts. 
B)  large external beneﬁts compared to private beneﬁts. 
C)  small economic losses to a small number of people and large economic losses to a large number of people. 
D)  large economic gains to a small number of people and small economic losses to a large number of people. 
A)  private beneﬁts equal to external beneﬁts. 
B)  large external beneﬁts compared to private beneﬁts. 
C)  small economic losses to a small number of people and large economic losses to a large number of people. 
D)  large economic gains to a small number of people and small economic losses to a large number of people.

Question 2

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Accepted Answer

A)  moral hazard. 
B)  the principal-agent problem. 
C)  logrolling. 
D)  rent-seeking behavior. 
A)  moral hazard. 
B)  the principal-agent problem. 
C)  logrolling. 
D)  rent-seeking behavior.

Question 3

Which of the following is an example of a public good?

Accepted Answer

A)  a weather warning system 
B)  a television 
C)  a sofa 
D)  a bottle of soda 
A)  a weather warning system 
B)  a television 
C)  a sofa 
D)  a bottle of soda

Question 4

Public choice theory focuses on the economics of

Accepted Answer

A)  ﬁscal and monetary policy. 
B)  the behavior of business ﬁrms. 
C)  antitrust and regulatory policy. 
D)  government decision making, politics, and elections. 
A)  ﬁscal and monetary policy. 
B)  the behavior of business ﬁrms. 
C)  antitrust and regulatory policy. 
D)  government decision making, politics, and elections.

Question 5

Public choice economists contend public bureaucracies are ineﬃcient primarily because

Accepted Answer

A)  the value of public goods is more easily measured than is the value of private goods. 
B)  of the absence of competitive market pressures. 
C)  public sector workers are more security-conscious than are private sector workers. 
D)  relatively low pay in government attracts workers of lesser quality. 
A)  the value of public goods is more easily measured than is the value of private goods. 
B)  of the absence of competitive market pressures. 
C)  public sector workers are more security-conscious than are private sector workers. 
D)  relatively low pay in government attracts workers of lesser quality.

Question 6

Voters are making a choice to spend money on three projects: a dam, a school, or a road. In the choice between the dam and the school, the majority favors the school. In a choice between a dam and a road, the
Majority favors a dam. In a choice between a road and a school, the majority favors a road. These rankings
Indicate that majority voting may

Accepted Answer

A)  result in economically eﬃcient outcomes because of rent-seeking behavior. 
B)  reﬂect irrational preferences. 
C)  produce inconsistent choices. 
D)  lead to consistent choices in spite of irrational community preferences. 
A)  result in economically eﬃcient outcomes because of rent-seeking behavior. 
B)  reﬂect irrational preferences. 
C)  produce inconsistent choices. 
D)  lead to consistent choices in spite of irrational community preferences.

Question 7

(Last Word) Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Accepted Answer

A)  Yes, there is a 100% return on the taxpayer money spent. 
B)  No, there is 0 percent return on taxpayer's money. 
C)  Yes, it's always a good idea to attract new businesses to your state no matter how much it costs. 
D)  No, there are low economic returns on these types of offers. 
A)  Yes, there is a 100% return on the taxpayer money spent. 
B)  No, there is 0 percent return on taxpayer's money. 
C)  Yes, it's always a good idea to attract new businesses to your state no matter how much it costs. 
D)  No, there are low economic returns on these types of offers.

Question 8

Demand-side market failures refer to those situations when there is a shortage in the market because buyers
want to buy more than what is available in the market.

Accepted Answer

A) True 
 B)False

Question 9

The sometimes inconsistent results coming from a series of paired-choice voting is due to

Accepted Answer

A)  voters changing their preferences. 
B)  irrational preferences among some voters. 
C)  a normal consequence of majority voting. 
D)  voters not having a good idea of their preferences. 
A)  voters changing their preferences. 
B)  irrational preferences among some voters. 
C)  a normal consequence of majority voting. 
D)  voters not having a good idea of their preferences.

Question 10

How does government determine the optimal amount of a public good?

Accepted Answer

The government must ﬁrst try to estimate

Question 11

Majority voting on whether or not a public good should be produced could lead to a result where a public
good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Accepted Answer

A) True 
 B)False

Question 12

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of
individual voters.

Accepted Answer

A) True 
 B)False

Question 13

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Accepted Answer

A)  demand-side market failure. 
B)  supply-side market failure. 
C)  competitive market. 
D)  monopolistic market. 
A)  demand-side market failure. 
B)  supply-side market failure. 
C)  competitive market. 
D)  monopolistic market.

Question 14

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The beneﬁt of the public good
Is $380 for Matt, $360 for Joe, and $200 for Teresa. In a majority vote, this proposal will most likely be

Accepted Answer

A)  accepted; the public good is produced, even though it is economically ineﬃcient. 
B)  defeated; the public good is not produced, even though it would have been eﬃcient to do so. 
C)  accepted; the public good is produced, which is economically eﬃcient. 
D)  defeated; the public good is not produced, which is the proper outcome. 
A)  accepted; the public good is produced, even though it is economically ineﬃcient. 
B)  defeated; the public good is not produced, even though it would have been eﬃcient to do so. 
C)  accepted; the public good is produced, which is economically eﬃcient. 
D)  defeated; the public good is not produced, which is the proper outcome.

Question 15

Why is there a free-rider problem with public goods?

Accepted Answer

Once a producer has provided a public go

Question 16

The two main characteristics of a public good are

Accepted Answer

A)  production at constant marginal cost and rising demand. 
B)  nonexcludability and production at rising marginal cost. 
C)  nonrivalry and nonexcludability. 
D)  nonrivalry and large negative externalities. 
A)  production at constant marginal cost and rising demand. 
B)  nonexcludability and production at rising marginal cost. 
C)  nonrivalry and nonexcludability. 
D)  nonrivalry and large negative externalities.

Question 17

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

Accepted Answer

A)  paradox of voting. 
B)  regulatory capture effect. 
C)  beneﬁts-received principle. 
D)  concept of limited and bundled choices. 
A)  paradox of voting. 
B)  regulatory capture effect. 
C)  beneﬁts-received principle. 
D)  concept of limited and bundled choices.

Question 18

The term government failure refers to the

Accepted Answer

A)  large losses suffered by publicly owned water, gas, and electric companies. 
B)  large number of bankruptcies that have occurred recently among local governments. 
C)  economically ineﬃcient outcomes caused by voting problems or incentive structures in government. 
D)  inability of government agencies to provide adequate police protection in low-income neighborhoods. 
A)  large losses suffered by publicly owned water, gas, and electric companies. 
B)  large number of bankruptcies that have occurred recently among local governments. 
C)  economically ineﬃcient outcomes caused by voting problems or incentive structures in government. 
D)  inability of government agencies to provide adequate police protection in low-income neighborhoods.

Question 19

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Accepted Answer

A)  the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to adopt. 
B)  the government has much imperfection and creates a lot of ineﬃciencies; therefore, it is best to adopt a pure market system. 
C)  it is best to always compare perfect markets against an idealized benevolent government that eﬃciently responds to the wants of society. 
D)  we must carefully compare the beneﬁts of government intervention in our markets against the costs of such intervention. 
A)  the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to adopt. 
B)  the government has much imperfection and creates a lot of ineﬃciencies; therefore, it is best to adopt a pure market system. 
C)  it is best to always compare perfect markets against an idealized benevolent government that eﬃciently responds to the wants of society. 
D)  we must carefully compare the beneﬁts of government intervention in our markets against the costs of such intervention.

Question 20

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Accepted Answer

A) True 
 B)False

The special-interest effect is one that yields

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Which of the following is an example of a public good?

Public choice theory focuses on the economics of

Public choice economists contend public bureaucracies are ineﬃcient primarily because

(Last Word) Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

The sometimes inconsistent results coming from a series of paired-choice voting is due to

How does government determine the optimal amount of a public good?

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of individual voters.

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Why is there a free-rider problem with public goods?

The two main characteristics of a public good are

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

The term government failure refers to the

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters

Exam 5: Public Goods, Public Choice, and Government Failure

The special-interest effect is one that yields

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Which of the following is an example of a public good?

Public choice theory focuses on the economics of

Public choice economists contend public bureaucracies are ineﬃcient primarily because

(Last Word) Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

The sometimes inconsistent results coming from a series of paired-choice voting is due to

How does government determine the optimal amount of a public good?

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of individual voters.

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Why is there a free-rider problem with public goods?

The two main characteristics of a public good are

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

The term government failure refers to the

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters