Question 1

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) C) and D)
F) A) and B)

Question 2

The appeal to government for special beneﬁts at taxpayers' or someone else's expense is called the paradox
of voting.

Accepted Answer

A) True 
 B)False

Question 3

According to the marginal-cost-marginal-beneﬁt rule,

Accepted Answer

A)   only government projects (as opposed to private projects)  should be assessed by comparing marginal costs and marginal beneﬁts.
B)   the optimal project size is the one for which MB = MC.
C)   the optimal project size is the one for which MB exceeds MC by the greatest amount.
D)   project managers should attempt to minimize both MB and MC.E) None of the above
F) All of the above

Question 4

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) B) and C)
F) C) and D)

Question 5

Which of the following is the best example of rent-seeking behavior?

Accepted Answer

A)   Voters consider a ballot measure that would increase taxes to better fund schools.
B)   Students at a university lobby the administration to improve dorms and reduce class sizes without increasing tuition.
C)   Consumers try to get ﬂying cars produced by telling automakers they are willing to pay for them.
D)   Senators vote for what their constituents want so they can get reelected.E) B) and D)
F) A) and C)

Question 6

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We
Can conclude that

Accepted Answer

A)   the third unit should not be produced.
B)   the third unit should be produced.
C)   zero units should be produced.
D)   4 units should be produced.E) B) and D)
F) All of the above

Question 7

Because majority voting fails to incorporate the strength of the preferences of individual voters, it

Accepted Answer

A)   creates negative externalities.
B)   can, under some circumstances, produce economically ineﬃcient outcomes.
C)   leads to market failure.
D)   leads to politics dominated by special-interest groups.E) A) and C)
F) B) and C)

Question 8

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 9

Critics of government contend that the market system creates incentives and pressures for internal eﬃciency
that are absent in the public sector.

Accepted Answer

A) True 
 B)False

Question 10

The following data are for a series of increasingly extensive ?ood-control projects.   Total Cost per Year  Total Benefit per Year  Plan A= Levees $10,000$16,000 Plan B= Small Reservoir 24,00036,000 Plan C = Medium Reservoir 44,00052,000 Plan D= Large Reservoir 72,00064,000\begin{array} { | l | c | c | } \hline & 	ext { Total Cost per Year } & 	ext { Total Benefit per Year } \\hline 	ext { Plan } A = 	ext { Levees } & \$ 10,000 & \$ 16,000 \\hline 	ext { Plan } B = 	ext { Small Reservoir } & 24,000 & 36,000 \\hline 	ext { Plan C = Medium Reservoir } & 44,000 & 52,000 \\hline 	ext { Plan } D = 	ext { Large Reservoir } & 72,000 & 64,000 \\hline\end{array} Plan A= Levees  Plan B= Small Reservoir  Plan C = Medium Reservoir  Plan D= Large Reservoir ​ Total Cost per Year $10,00024,00044,00072,000​ Total Benefit per Year $16,00036,00052,00064,000​​  For Plan D marginal costs and marginal bene?ts are

Accepted Answer

A)   $72,000 and $64,000, respectively.
B)   $28,000 and $12,000, respectively.
C)   $24,000 and $18,000, respectively.
D)   $16,000 and $28,000, respectively. E) C) and D)
F) A) and C)

Question 11

New Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime
Control. This table shows the expected total annual costs and bene?ts of these alternatives.
  Total Costs per  Year  Total Benefits per Year (reduction in  the costs of crime)   Level One -1 Security Officer $20,000$80,000 Level Two -1 Security Officer with Guard Dog 30,000120,000 Level Three -1 Security Officer with Guard Dog and Patrol Car 40,000140,000 Level Four -2 Security Officers with Guard Dog 50,000155,000 Level Five -2 Security Officers with Guard Dog and Patrol Car 60,000160,000\begin{array} { | l | c | c | } \hline & \begin{array} { c } 	ext { Total Costs per } \	ext { Year }\end{array} & \begin{array} { c } 	ext { Total Benefits per Year (reduction in } \	ext { the costs of crime)  }\end{array} \\hline 	ext { Level One -1 Security Officer } & \$ 20,000 & \$ 80,000 \\hline 	ext { Level Two -1 Security Officer with Guard Dog } & 30,000 & 120,000 \\hline 	ext { Level Three -1 Security Officer with Guard Dog and Patrol Car } & 40,000 & 140,000 \\hline 	ext { Level Four -2 Security Officers with Guard Dog } & 50,000 & 155,000 \\hline 	ext { Level Five -2 Security Officers with Guard Dog and Patrol Car } & 60,000 & 160,000 \\hline\end{array} Level One -1 Security Officer  Level Two -1 Security Officer with Guard Dog  Level Three -1 Security Officer with Guard Dog and Patrol Car  Level Four -2 Security Officers with Guard Dog  Level Five -2 Security Officers with Guard Dog and Patrol Car ​ Total Costs per  Year ​$20,00030,00040,00050,00060,000​ Total Benefits per Year (reduction in  the costs of crime)  ​$80,000120,000140,000155,000160,000​​  If New Normal University undertakes program Level Three,

Accepted Answer

A)   total bene?ts will be less than total costs.
B)   marginal costs will exceed marginal bene?ts.
C)   there would be an underallocation of resources to crime control.
D)   there would be an overallocation of resources to crime control. E) All of the above
F) A) and C)

Question 12

Regulatory capture occurs when government exerts excessive control over an industry.

Accepted Answer

A) True 
 B)False

Question 13

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) A) and B)
F) C) and D)

Question 14

Which of the following would be the best example of regulatory capture?

Accepted Answer

A)   Starbucks buys up all the available supplies of coffee beans.
B)   Nike executives inﬂuence the rules for track and ﬁeld events.
C)   Federal law makers write and pass legislation that protects domestic companies from foreign competition.
D)   Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.E) B) and D)
F) A) and C)

Question 15

New Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime
Control. This table shows the expected total annual costs and bene?ts of these alternatives.
  Total Costs per  Year  Total Benefits per Year (reduction in  the costs of crime)   Level One-1 Security Officer $20,000$80,000 Level Two -1 Security Officer with Guard Dog 30,000120,000 Level Three -1 Security Officer with Guard Dog and Patrol Car 40,000140,000 Level Four -2 Security Officers with Guard Dog 50,000155,000 Level Five -2 Security Officers with Guard Dog and Patrol Car 60,000160,000\begin{array} { | l | c | c | } \hline & \begin{array} { c } 	ext { Total Costs per } \	ext { Year }\end{array} & \begin{array} { c } 	ext { Total Benefits per Year (reduction in } \	ext { the costs of crime)  }\end{array} \\hline 	ext { Level One-1 Security Officer } & \$ 20,000 & \$ 80,000 \\hline 	ext { Level Two -1 Security Officer with Guard Dog } & 30,000 & 120,000 \\hline 	ext { Level Three -1 Security Officer with Guard Dog and Patrol Car } & 40,000 & 140,000 \\hline 	ext { Level Four -2 Security Officers with Guard Dog } & 50,000 & 155,000 \\hline 	ext { Level Five -2 Security Officers with Guard Dog and Patrol Car } & 60,000 & 160,000 \\hline\end{array} Level One-1 Security Officer  Level Two -1 Security Officer with Guard Dog  Level Three -1 Security Officer with Guard Dog and Patrol Car  Level Four -2 Security Officers with Guard Dog  Level Five -2 Security Officers with Guard Dog and Patrol Car ​ Total Costs per  Year ​$20,00030,00040,00050,00060,000​ Total Benefits per Year (reduction in  the costs of crime)  ​$80,000120,000140,000155,000160,000​​  Based on cost-bene?t analysis, New Normal University should undertake Level

Accepted Answer

A)   Two.
B)   Three.
C)   Four.
D)   Five. E) A) and C)
F) A) and B)

Question 16

Refer to the table. In a choice between parks and education,

Accepted Answer

A)   no voter decision is possible.
B)   a majority of voters would favor education.
C)   the outcome would depend on which item was listed ﬁrst on the ballot.
D)   a majority of voters would favor parks.E) B) and C)
F) All of the above

Question 17

The principle that under some circumstances majority voting fails to make consistent choices reﬂecting the community's underlying preference is best demonstrated by the

Accepted Answer

A)   paradox of voting.
B)   concept of logrolling.
C)   median-voter model.
D)   Coase theorem.E) A) and D)
F) B) and C)

Question 18

Some economists contend that government agencies are generally less eﬃcient than private businesses due to the following reasons, except

Accepted Answer

A)   government bureaucracies do not face the proﬁt motive, which is a major incentive that guides private ﬁrms.
B)   government bureaucrats tend to deal with failing programs by putting more resources into the programs, rather than eliminating the program.
C)   incompetent workers gravitate toward government, while motivated workers gravitate toward the private sector.
D)   bureaucrats, along with the special-interest groups they serve, often gain enough political clout to keep their agencies going regardless of performance.E) A) and D)
F) None of the above

Question 19

In corporations, owners are __________________ and managers are ________________.

Accepted Answer

A)   agents; principals
B)   stockholders; bondholders
C)   agents; employees
D)   principals; agentsE) A) and B)
F) All of the above

Question 20

Refer to the table. The inconsistency illustrated by the table is that, while a majority of voters prefer the

Accepted Answer

A)   highway to the lighthouse and the submarine to the highway, they also prefer the lighthouse to the submarine.
B)   lighthouse to the highway and the lighthouse to the submarine, they also prefer the submarine to the highway.
C)   highway to the lighthouse and the submarine to the lighthouse, they also prefer the submarine to the highway.
D)   lighthouse to the submarine and the highway to the submarine, they also prefer the highway to the lighthouse.E) A) and D)
F) C) and D)

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

Correct Answer
verified

The principle that under some circumstances majority voting fails to make consistent choices reﬂecting the community's underlying preference is best demonstrated by the

Correct Answer
verified

Regulatory capture occurs when government exerts excessive control over an industry.

Correct Answer
verified

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

Correct Answer
verified

Critics of government contend that the market system creates incentives and pressures for internal eﬃciency that are absent in the public sector.

Correct Answer
verified

Which of the following would be the best example of regulatory capture?

Correct Answer
verified

Some economists contend that government agencies are generally less eﬃcient than private businesses due to the following reasons, except

Correct Answer
verified

Which of the following is the best example of rent-seeking behavior?

Correct Answer
verified

The appeal to government for special beneﬁts at taxpayers' or someone else's expense is called the paradox of voting.

Correct Answer
verified

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 Answer
verified

Refer to the table. In a choice between parks and education,

Correct Answer
verified

Correct Answer
verified

Because majority voting fails to incorporate the strength of the preferences of individual voters, it

Correct Answer
verified

In corporations, owners are __ and managers are .

Correct Answer
verified

According to the marginal-cost-marginal-beneﬁt rule,

Correct Answer
verified

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

Correct Answer
verified

Refer to the table. The inconsistency illustrated by the table is that, while a majority of voters prefer the

Correct Answer
verified

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We Can conclude that

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

The principle that under some circumstances majority voting fails to make consistent choices reﬂecting the community's underlying preference is best demonstrated by the

Correct AnswerverifiedShow Answer

Regulatory capture occurs when government exerts excessive control over an industry.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Critics of government contend that the market system creates incentives and pressures for internal eﬃciency that are absent in the public sector.

Correct AnswerverifiedShow Answer

Which of the following would be the best example of regulatory capture?

Correct AnswerverifiedShow Answer

Some economists contend that government agencies are generally less eﬃcient than private businesses due to the following reasons, except

Correct AnswerverifiedShow Answer

Which of the following is the best example of rent-seeking behavior?

Correct AnswerverifiedShow Answer

The appeal to government for special beneﬁts at taxpayers' or someone else's expense is called the paradox of voting.

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

Refer to the table. In a choice between parks and education,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because majority voting fails to incorporate the strength of the preferences of individual voters, it

Correct AnswerverifiedShow Answer

In corporations, owners are __________________ and managers are ________________.

Correct AnswerverifiedShow Answer

According to the marginal-cost-marginal-beneﬁt rule,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the table. The inconsistency illustrated by the table is that, while a majority of voters prefer the

Correct AnswerverifiedShow Answer

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We Can conclude that

Correct AnswerverifiedShow Answer

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

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In corporations, owners are __ and managers are .

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