Exam 19: Government in the Market Economy

When an anticipated program or project involves positive net benefits it is:

Social marginal cost is the cost borne by:

If investment in a public project makes at least one individual better off and no one worse off, the result is called:

Demand Estimation for Public Goods. Assume that park visitors and nonvisitors have revealed their group demands for national park service, a public good, as follows:

Market failure refers to:

When government-run enterprise is sold to the private sector, this process is known as:

Market failure refers to a situation where:

Policies that are designed to reduce barriers to international trade are known as:

Benefit-cost Analysis. The economic valuation of human life has consequences for a broad range of management decisions in both the private and public sectors. Because resources are limited for individual companies and for society as a whole, rational decision makers cannot argue that any individual company or society should spend "whatever it takes" to save a human life. A. Explain how public sector managers might obtain reliable life value estimates based upon actual economic behavior. B. Describe some of the limitations of such life value estimates based upon actual economic behavior.

Social Rate of Discount. Assume that the rate of return on long-term government bonds is 8%, a typical after-tax return on investment in the private sector is 10%, the marginal corporate and individual tax rate is 50%, and consumption averages 94% of total income. A. Based on the information provided, calculate an economically appropriate social rate of discount. B. Would an increase in the Federal deficit that led to an increase in the long-term government bond rate affect the appropriate social rate of discount? If so, how? If not, why not?

Costs of Regulation. The Montana Coal Company sells coal to electric utilities in the Pacific Northwest. Unfortunately, Montana's coal has high particulate content and, therefore, the company is adversely affected by state and local regulations governing smoke and dust emissions at its customer's electricity-generating plants. Montana's total cost and marginal cost relations are: where Q is tons of coal produced per month and TC includes a normal rate of return on investment.

A method used to determine how to best employ resources in a given social program or public-sector investment project is called:

Theory of Regulation. The New England Power & Light Company generates electricity, and in the process emits sulfur dioxide into the local atmosphere. As a concerned citizen, you are appalled at the aesthetic and environmental implications of the company's policies, as well as the potential health hazard to the local population. A. Pollution is a negative production externality and an example of market failure. What might you cite as reasons why markets fail? B. In analyzing remedies to the current situation, consider two general types of controls to limit pollution: Regulations--licenses, permits, compulsory standards, and so on. Payments--various types of government aid to help companies install pollution-control equipment. Aid can take the form of forgiven local property taxes, income tax credits, special accelerated depreciation allowances for pollution-control equipment, low-cost government loans, and so on. Review each of these methods of pollution control and: 1. Determine the incentive structure for the polluter under each form of control. 2. Decide who pays for a clean environment under each form of control. (Note that each form of control has definite implications about who owns the property rights to the environment.) 3. Defend a particular form of control on the basis of your analysis, including both efficiency and equity considerations.

Adam Smith's belief that the pursuit of self-interest by individuals leads to social betterment is called the:

Social Rate of Discount. Assume that the rate of return on long-term government bonds is 7%, a typical after-tax return on investment in the private sector is 9%, the marginal corporate and individual tax rate is 40%, and consumption averages 94% of total income. A. Based on the information provided, calculate an economically appropriate social rate of discount. B. Would an increase in the private-sector savings rate due to a reduction in tax benefits for individual retirement accounts increase, decrease, or have no effect on the appropriate social rate of discount?

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

An example of a public good subject to the nonexclusion concept that is provided by the private sector in the United States is:

Theory of Regulation. The Badger Power & Light Company generates electricity, and in the process emits sulfur dioxide into the local atmosphere. As a concerned citizen, you are appalled at the aesthetic and environmental implications of the company's policies, as well as the potential health hazard to the local population. A. Pollution is a negative production externality and an example of market failure. What might you cite as reasons why markets fail? B. In analyzing remedies to the current situation, consider two general types of controls to limit pollution: Regulations--licenses, permits, compulsory standards, and so on. Charges--excise taxes on polluting fuels (coal, oil, and so forth), pollution discharge taxes, and others. Review each of these methods of pollution control. 1. Determine the incentive structure for the polluter under each form of control. 2. Decide who pays for a clean environment under each form of control. (Note that each form of control has definite implications about who owns the property rights to the environment.) 3. Defend a particular form of control on the basis of your analysis, including both efficiency and equity considerations.

Air and water pollution are examples of:

Water pollution is a familiar type of: