Question 1

Which of the following is a key difference between the economic activities of government and those of private firms?

Accepted Answer

A)   Private firms face the constraint of scarcity; government does not.
B)   Government focuses primarily on equity; private firms focus only on efficiency.
C)   Private economic activities create externalities; government activities do not.
D)   Government has the legal right to force people to do things; private firms do not.E) B) and C)
F) None of the above

Question 2

In presidential elections, voters often find that they do not agree with any single candidate on all the issues that matter to them (the voters) . This is known as the

Accepted Answer

A)   principal-agent problem.
B)   limited and bundled choice problem.
C)   rent-seeking behavior problem.
D)   lack of accountability problem.E) A) and B)
F) B) and C)

Question 3

What is a likely explanation for why the budget of a government agency might increase beyond its optimal size?

Accepted Answer

A)   the paradox of voting
B)   the influence of the median voter
C)   the power of special-interest groups
D)   the allocative efficiency of governmentE) A) and B)
F) A) and C)

Question 4

Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community. No vote trading is allowed.  If the tax cost of this proposed project is $300 per person, a majority vote will

Accepted Answer

A)   defeat this project and resources will be underallocated to it.
B)   pass this project and resources will be allocated efficiently.
C)   pass this project and resources will be underallocated to it.
D)   defeat this project and resources will be overallocated to it.E) C) and D)
F) All of the above

Question 5

The concept of limited and bundled choice, as used in public choice theory, refers to the fact that

Accepted Answer

A)   politicians may not be objective in evaluating economic policy programs due to their individual biases.
B)   because of the importance of television and other modern communication media, the best and brightest candidates may not be the ones elected by voters.
C)   in an election, each voter must select a candidate who has various preferences (in a wide array of issues)  that do not exactly match the preferences of the voter.
D)   the most economically efficient public policy programs may not be selected because political leaders do not know enough about economics.E) A) and C)
F) A) and D)

Question 6

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 7

The "pork" in pork-barrel politics refers to government projects that politicians try to secure in favor of the common good for the whole nation.

Accepted Answer

A) True 
 B)False

Question 8

Interest groups result when people

Accepted Answer

A)   in a certain zip code vote together.
B)   who share strong preferences on a choice band together.
C)   do not all vote in elections.
D)   do not have strong preferences on the issues to be voted on.E) A) and B)
F) A) and C)

Question 9

The situation where "the few who yell the loudest get heard" is referred to as the

Accepted Answer

A)   special-interest effect.
B)   principal-agent problem.
C)   moral hazard problem.
D)   adverse selection effect.E) A) and B)
F) A) and C)

Question 10

If a public good provides social benefits that are greater than its costs, then the majority of voters would always vote in favor of producing the good.

Accepted Answer

A) True 
 B)False

Question 11

When politicians support policies such as imposing punitive tariffs on imports, which are popular among voters but which also reduce economic efficiency, we refer to this as

Accepted Answer

A)   regulatory capture.
B)   voter failure.
C)   limited and bundled choice.
D)   paradox of voting.E) A) and B)
F) C) and D)

Question 12

Economists widely support deregulation of industries that tend toward monopoly or generate substantial negative externalities.

Accepted Answer

A) True 
 B)False

Question 13

Nobody gains from pork-barrel politics other than the politicians.

Accepted Answer

A) True 
 B)False

Question 14

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of

Accepted Answer

A)   goods with negative externalities.
B)   goods with positive externalities.
C)   private sector goods.
D)   complementary goods.E) All of the above
F) C) and D)

Question 15

Deregulation of an industry will always lead to an improvement in economic efficiency.

Accepted Answer

A) True 
 B)False

Question 16

Special-interest groups result from people with strong preferences on a particular issue banding together to let policymakers know their preferences and could thereby lead to efficient outcomes.

Accepted Answer

A) True 
 B)False

Question 17

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for

Accepted Answer

A)   airlines.
B)   pharmaceuticals.
C)   railroads.
D)   interstate trucking.E) All of the above
F) B) and C)

Question 18

In what way, if any, does the invisible hand affect government resource allocation?

Accepted Answer

A)   It enhances government efficiency by promoting competition for resources within government.
B)   It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best uses.
C)   It rewards government bureaucrats who are most efficient at implementing public policies.
D)   It reduces government efficiency by sending market signals that interfere with government decision making.E) All of the above
F) A) and D)

Question 19

The idea of government failure includes all of the following except

Accepted Answer

A)   special-interest effect.
B)   bureaucratic inefficiency.
C)   pressure by special-interest groups.
D)   extensive positive externalities from public and quasi-public goods.E) All of the above
F) A) and C)

Question 20

Public choice economists

Accepted Answer

A)   analyze the incidence of taxes.
B)   are also known as Keynesian economists.
C)   use the tools of economics to analyze decision making, politics, and elections in the public sector.
D)   are, by definition, economists employed by federal, state, and local governments.E) C) and D)
F) A) and B)

Exam 5: Governments Role and Government Failure

The idea of government failure includes all of the following except

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The "pork" in pork-barrel politics refers to government projects that politicians try to secure in favor of the common good for the whole nation.

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The concept of limited and bundled choice, as used in public choice theory, refers to the fact that

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Nobody gains from pork-barrel politics other than the politicians.

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What is a likely explanation for why the budget of a government agency might increase beyond its optimal size?

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The situation where "the few who yell the loudest get heard" is referred to as the

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In what way, if any, does the invisible hand affect government resource allocation?

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Proponents of deregulation point to all of the following industries as examples of successful deregulation except for

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Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community. No vote trading is allowed. If the tax cost of this proposed project is $300 per person, a majority vote will

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If a public good provides social benefits that are greater than its costs, then the majority of voters would always vote in favor of producing the good.

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Public choice economists

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When politicians support policies such as imposing punitive tariffs on imports, which are popular among voters but which also reduce economic efficiency, we refer to this as

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Interest groups result when people

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Special-interest groups result from people with strong preferences on a particular issue banding together to let policymakers know their preferences and could thereby lead to efficient outcomes.

Correct AnswerverifiedShow Answer

Which of the following is a key difference between the economic activities of government and those of private firms?

Correct AnswerverifiedShow Answer

Economists widely support deregulation of industries that tend toward monopoly or generate substantial negative externalities.

Correct AnswerverifiedShow Answer

Deregulation of an industry will always lead to an improvement in economic efficiency.

Correct AnswerverifiedShow Answer

In presidential elections, voters often find that they do not agree with any single candidate on all the issues that matter to them (the voters) . This is known as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of

Correct AnswerverifiedShow Answer

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