Question 1

The invisible hand guides government's economic activity just as it does with private economic activity.

Accepted Answer

A) True 
 B)False

Question 2

What is the main problem with government guarantees that socialize losses and privatize gains?

Accepted Answer

A)  They encourage overly risky investments by insulating private investors from any losses.
B)  The investments that do occur never generate production of goods underproduced by the private sector.
C)  They discourage private investment in worthwhile projects.
D)  They tend to benefit foreign companies at the expense of domestic firms.E) C) and D)
F) A) and B)

Question 3

Public choice theorists contend that:

Accepted Answer

A)  government can efficiently correct instances of market system failure.
B)  the existence of cost-benefit analysis has brought about the efficient use of resources in the public sector.
C)  public bureaucracies are inherently more efficient than private enterprises.
D)  public bureaucracies are inherently less efficient than private enterprises.E) All of the above
F) C) and D)

Question 4

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.E) B) and C)
F) None of the above

Question 5

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Accepted Answer

A) True 
 B)False

Question 6

Answer the question on the basis of the following table that shows the total costs and total benefits facing a city of five different potential baseball stadiums of increasing size.All figures are in millions of dollars.  Refer to the table.The marginal cost and marginal benefit of stadium B (relative to A)  are:

Accepted Answer

A)  $20 million and $50 million, respectively.
B)  $100 million and $200 million, respectively.
C)  $30 million and $50 million, respectively.
D)  $20 million and $60 million, respectively.E) B) and C)
F) A) and D)

Question 7

Government officials tend to make:

Accepted Answer

A)  better economic decisions than private individuals because of the wealth of information at their disposal.
B)  better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy.
C)  inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.
D)  inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.E) C) and D)
F) A) and D)

Question 8

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Accepted Answer

A)  logrolling.
B)  the paradox of voting.
C)  the median-voter model.
D)  the special-interest effect.E) All of the above
F) A) and D)

Question 9

Public choice economists hold that politicians will:

Accepted Answer

A)  favor programs entailing immediate and clear-cut costs and vaguely defined or deferred benefits.
B)  follow policies leading to an optimal allocation of resources between public and private sectors.
C)  favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs.
D)  objectively weigh the costs and benefits of various government programs and vote accordingly.E) A) and B)
F) All of the above

Question 10

Regulatory capture is said to have occurred when which of the following is true?

Accepted Answer

A)  Rules and enforcement in an industry are heavily influenced by the industry being regulated.
B)  One firm controls an entire market, having captured customers away from other firms.
C)  Government imposes excessive regulations in an industry, resulting in inefficiencies.
D)  Consumers make all the rules for an industry, forcing firms into inefficient production methods.E) A) and B)
F) A) and C)

Question 11

Government's unfunded liabilities:

Accepted Answer

A)  result from the political bias toward immediate benefits and deferred costs.
B)  result in more efficient policies in an attempt to satisfy these liabilities.
C)  are caused primarily by market failures.
D)  only occur in democratically elected governments.E) B) and C)
F) All of the above

Question 12

Government economic policies:

Accepted Answer

A)  following the same principles as microeconomics.
B)  are not self-correcting.
C)  are self-regulating.
D)  often disregard the benefits of the few for the gain of the many.E) None of the above
F) A) and B)

Question 13

Which of the following would best explain why regulatory capture is a problem?

Accepted Answer

A)  The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness.
B)  Regulatory capture unduly increases the size and power of government, increasing costs for taxpayers.
C)  Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices.
D)  The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.E) All of the above
F) A) and D)

Question 14

The government's ability to coerce can enhance economic efficiency by:

Accepted Answer

A)  eliminating income inequality.
B)  correcting market failures.
C)  preventing resources from going to their most valued uses.
D)  restraining self-interest.E) All of the above
F) A) and B)

Question 15

Government loan guarantees tend to socialize gains and privatize losses.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

A)  Bringing industry experts into the regulatory process.
B)  Creating a standard set of regulations for all industries.
C)  Deregulation of the industry.
D)  Government subsidies for firms in the industry.E) All of the above
F) None of the above

Question 17

The median-voter model implies that:

Accepted Answer

A)  political voting will be as economically efficient as "dollar voting" in competitive markets.
B)  all voters have about the same preferences for various public goods and services.
C)  many people will be dissatisfied with the size of government in the economy.
D)  with majority voting there can never be a consistent ordering of public good preferences.E) A) and B)
F) A) and D)

Question 18

Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800.If the proposed tax levied on each for the park would be $300, a majority vote will:

Accepted Answer

A)  defeat this project and resources will be underallocated to it.
B)  defeat this project and resources will be efficiently allocated.
C)  pass this project and resources will be underallocated to it.
D)  pass this project and resources will be overallocated to it.E) None of the above
F) C) and D)

Question 19

Efficient public decision making is often impaired by the:

Accepted Answer

A)  special-interest effect.
B)  public interest.
C)  Not for profit organizations.
D)  foreign governments.E) B) and C)
F) None of the above

Question 20

The median-voter model implies that a political office seeker will:

Accepted Answer

A)  adopt more extreme views when seeking his or her party's nomination than when running against the other party's opponent.
B)  adopt less extreme views when seeking his or her party's nomination than when running against the other party's opponent.
C)  favor extensive government spending because demand curves for public goods are added vertically rather than horizontally.
D)  favor the private resolution of externality problems rather than governmental intervention.E) B) and D)
F) B) and C)

Exam 5: B: Governments Role and Government Failure

Government economic policies:

Correct Answer
verified

Which of the following would best explain why regulatory capture is a problem?

Correct Answer
verified

Which of the following is considered a potential solution to some regulatory capture?

Correct Answer
verified

Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800.If the proposed tax levied on each for the park would be $300, a majority vote will:

Correct Answer
verified

The invisible hand guides government's economic activity just as it does with private economic activity.

Correct Answer
verified

Regulatory capture is said to have occurred when which of the following is true?

Correct Answer
verified

Public choice economists hold that politicians will:

Correct Answer
verified

Government loan guarantees tend to socialize gains and privatize losses.

Correct Answer
verified

Government officials tend to make:

Correct Answer
verified

The median-voter model implies that a political office seeker will:

Correct Answer
verified

Public choice theorists contend that:

Correct Answer
verified

The median-voter model implies that:

Correct Answer
verified

Correct Answer
verified

Efficient public decision making is often impaired by the:

Correct Answer
verified

Government's unfunded liabilities:

Correct Answer
verified

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Correct Answer
verified

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

Correct Answer
verified

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Correct Answer
verified

The government's ability to coerce can enhance economic efficiency by:

Correct Answer
verified

What is the main problem with government guarantees that socialize losses and privatize gains?

Correct Answer
verified

Exam 5: B: Governments Role and Government Failure

Government economic policies:

Correct AnswerverifiedShow Answer

Which of the following would best explain why regulatory capture is a problem?

Correct AnswerverifiedShow Answer

Which of the following is considered a potential solution to some regulatory capture?

Correct AnswerverifiedShow Answer

Suppose that Steve and Susie each perceives $200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800.If the proposed tax levied on each for the park would be $300, a majority vote will:

Correct AnswerverifiedShow Answer

The invisible hand guides government's economic activity just as it does with private economic activity.

Correct AnswerverifiedShow Answer

Regulatory capture is said to have occurred when which of the following is true?

Correct AnswerverifiedShow Answer

Public choice economists hold that politicians will:

Correct AnswerverifiedShow Answer

Government loan guarantees tend to socialize gains and privatize losses.

Correct AnswerverifiedShow Answer

Government officials tend to make:

Correct AnswerverifiedShow Answer

The median-voter model implies that a political office seeker will:

Correct AnswerverifiedShow Answer

Public choice theorists contend that:

Correct AnswerverifiedShow Answer

The median-voter model implies that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Efficient public decision making is often impaired by the:

Correct AnswerverifiedShow Answer

Government's unfunded liabilities:

Correct AnswerverifiedShow Answer

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The pursuit through government of a transfer of wealth at society's expense is called "rent seeking."

Correct AnswerverifiedShow Answer

The government's ability to coerce can enhance economic efficiency by:

Correct AnswerverifiedShow Answer

What is the main problem with government guarantees that socialize losses and privatize gains?

Correct AnswerverifiedShow Answer

Correct Answer
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