Question 1

The market demand curve for a public good

Accepted Answer

A) is derived in the same manner as demand curves for private goods. 
B) is derived by horizontally summing all individual demand curves. 
C) shows the total value that all individuals place on each additional unit of the good. 
D) shows the total number of units that would be produced by the public sector at each possible price. 
A) is derived in the same manner as demand curves for private goods. 
B) is derived by horizontally summing all individual demand curves. 
C) shows the total value that all individuals place on each additional unit of the good. 
D) shows the total number of units that would be produced by the public sector at each possible price.

Question 2

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 3

Answer this question based on the following information for a public good. Pₐ and Pᵦ represent the prices that citizens (a)and (b), the only two people in this nation, are willing to pay for additional units of a quantity (Qc )of the public good. Qₛrepresents the quantity of the public good supplied by government at each of the collective prices.   The collective willingness of this nation to pay for the fourth unit of the public good is

Accepted Answer

A) $7. 
B) $6. 
C) $5. 
D) $3. 
A) $7. 
B) $6. 
C) $5. 
D) $3.

Question 4

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 $500 for Matt, $280 for Joe, and $260 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 5

According to some economists, the private sector is more efficient than the public sector mainly because

Accepted Answer

A) the private sector has a clear test of performance: profit and loss. 
B) wages, salaries, and fringe benefits are higher in the private sector. 
C) worker turnover is higher in the public sector. 
D) of extensive negative externalities in the public sector. 
A) the private sector has a clear test of performance: profit and loss. 
B) wages, salaries, and fringe benefits are higher in the private sector. 
C) worker turnover is higher in the public sector. 
D) of extensive negative externalities in the public sector.

Question 6

Political corruption occurs whenever

Accepted Answer

A) logrolling is used to secure votes for controversial legislation. 
B) government officials use unlawful misdirection of governmental resources for their own personal gain. 
C) special interest groups contribute to elected officials, who in turn support legislation that benefits the special interest group. 
D) there is pork barrel politics involved. 
A) logrolling is used to secure votes for controversial legislation. 
B) government officials use unlawful misdirection of governmental resources for their own personal gain. 
C) special interest groups contribute to elected officials, who in turn support legislation that benefits the special interest group. 
D) there is pork barrel politics involved.

Question 7

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 8

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.

Accepted Answer

A) True 
 B)False

Question 9

Among the following examples, the one that best illustrates a public good is the

Accepted Answer

A) laptops used by students in a college or university. 
B) movies produced by Hollywood companies. 
C) bike paths around a city or town. 
D) airline tickets bought by vacationers. 
A) laptops used by students in a college or university. 
B) movies produced by Hollywood companies. 
C) bike paths around a city or town. 
D) airline tickets bought by vacationers.

Question 10

One consequence of the paradox of voting is that whoever sets the agenda of a vote could practically predetermine the results of the vote.

Accepted Answer

A) True 
 B)False

Question 11

Rivalry means that when one person buys and consumes a product, it is not available for purchase and consumption by another person.

Accepted Answer

A) True 
 B)False

Question 12

As it relates to corporations, the principal-agent problem is that

Accepted Answer

A) the goals of the corporate managers (the principals)may not match the goals of the corporate owners (the agents). 
B) the goals of the corporate managers (the agents)may not match the goals of the corporate owners (the principals). 
C) the federal government (the agent)taxes both corporate profits and the dividends paid to stockholders (the principals). 
D) it is costly for the corporate owners (the principals)to obtain a corporate charter from government (the agent). 
A) the goals of the corporate managers (the principals)may not match the goals of the corporate owners (the agents). 
B) the goals of the corporate managers (the agents)may not match the goals of the corporate owners (the principals). 
C) the federal government (the agent)taxes both corporate profits and the dividends paid to stockholders (the principals). 
D) it is costly for the corporate owners (the principals)to obtain a corporate charter from government (the agent).

Question 13

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 14

Refer to the table. In a choice between the highway and the lighthouse,

Accepted Answer

A) a majority of voters favor the lighthouse. 
B) a majority of voters favor the highway. 
C) the voters are indifferent between the two. 
D) no voter decision is possible. 
A) a majority of voters favor the lighthouse. 
B) a majority of voters favor the highway. 
C) the voters are indifferent between the two. 
D) no voter decision is possible.

Question 15

Why are the public sector and private sector "imperfect institutions"?

Accepted Answer

The view of a benevolent government that

Question 16

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Accepted Answer

A) True 
 B)False

Question 17

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the

Accepted Answer

A) lobbyist. 
B) logroller. 
C) rent seeker. 
D) median voter. 
A) lobbyist. 
B) logroller. 
C) rent seeker. 
D) median voter.

Question 18

Why are mohair subsidies still being paid although their initial purpose has long expired?

Accepted Answer

Today, mohair subsidies are an example o

Question 19

List the five major sources of government failure.

Accepted Answer

The five major sources of gove

Question 20

As it relates to the political process, the principal-agent problem results from the

Accepted Answer

A) negative externalities that are created by some policy actions. 
B) political rules that encourage elected officials to engage in unethical and illegal behavior. 
C) inconsistency between voters' interest in programs and politicians' interest in reelection. 
D) paradox of voting. 
A) negative externalities that are created by some policy actions. 
B) political rules that encourage elected officials to engage in unethical and illegal behavior. 
C) inconsistency between voters' interest in programs and politicians' interest in reelection. 
D) paradox of voting.

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

The market demand curve for a public good

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

According to some economists, the private sector is more efficient than the public sector mainly because

Political corruption occurs whenever

The term government failure refers to the

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.

Among the following examples, the one that best illustrates a public good is the

One consequence of the paradox of voting is that whoever sets the agenda of a vote could practically predetermine the results of the vote.

Rivalry means that when one person buys and consumes a product, it is not available for purchase and consumption by another person.

As it relates to corporations, the principal-agent problem is that

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

Refer to the table. In a choice between the highway and the lighthouse,

Why are the public sector and private sector "imperfect institutions"?

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

When voters have different opinions about an issue, the position that is most likely to be adopted is that of the

Why are mohair subsidies still being paid although their initial purpose has long expired?

List the five major sources of government failure.

As it relates to the political process, the principal-agent problem results from the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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