CHAPTER 13: ECONOMIC ROLE IN GOVERNMENT
A U.S. company sends a lobbyist to Washington, D.C. to argue for increased tariffs on imported goods from China that compete with the company's own products. Which of the following represents an inefficiency in government due to misplaced incentives? A The lobbyist is successful at convincing legislators to pass the legislation, and American consumers pay higher prices. B The lobbyist fails because legislators fear their constituents will be upset at the price increases. C The lobbyist is successful at convincing the legislators to put the legislation up for a vote, but it fails to get a majority of the votes. D The lobbyist fails because there are many other lobbyists in town arguing for similar tariffs, but they cannot agree on the size of the tariff to be enforced.
A
Consider a good produced in a competitive market, but one with external benefits. The market price will result in too ______________ of the good for economic efficiency. The market price will be ______________ than the price that would convince producers to produce the efficient amount. A Little; lower B Little; higher C Much; lower D Much; higher
A
In efforts to increase economic efficiency, governments should ______________ common resources. A Tax B Subsidize C Do nothing for
A
In efforts to increase economic efficiency, governments should ______________ goods with external costs. A Tax B Subsidize C Do nothing for
A
Supply curves in competitive markets represent which of the following? A Marginal costs of production B Average costs of production C Supplier fixed costs D Marginal benefits to consumers
A
What can you say about the allocatively efficient level of output compared to the new equilibrium market quantity after the tax is imposed? A They are the same. B The equilibrium market quantity is greater. C The allocatively efficient quantity is greater. D You cannot tell from the information given.
A
What can you say about the equilibrium quantity of production for a market with external costs? A The equilibrium market quantity is too high and the equilibrium market price is too low, relative to the efficient point. B The equilibrium market quantity is too low and the equilibrium market price is too high, relative to the efficient point. C The equilibrium market quantity is too low and the equilibrium market price is too low, relative to the efficient point. D The equilibrium market quantity is too high and the equilibrium market price is too high, relative to the efficient point.
A
Which of the following descriptions best characterizes public goods? A Public goods are those where it is hard to keep non-payers from using the good, but their use of the good does not negatively impact others' ability to use it. B Public goods are those where it is hard to keep non-payers from using the good, and their use of the good negatively impacts others' ability to use it. C Public goods are those without an external cost of production or an external benefit of production. D Public goods are those where individual consumers can be excluded from using the good, but the marginal cost is zero and so an infinite number of goods should be produced.
A
Common resources are used too ______________ for economic efficiency because the marginal cost of using the resource is ______________ than if the resources were private goods. A Slowly; lower B Quickly; lower C Slowly; higher D Quickly; higher
B
Common resources involve externalities. The consumption of common resources results in external ______________ and the free market quantity produced and consumed is ______________. A Costs; too low B Costs; too high C Benefits; too low D Benefits; too high
B
How would you classify television broadcasts? A Private goods B Public goods C Ones with external benefits D Common resources
B
In efforts to increase economic efficiency, governments should ______________ public goods. A Tax B Subsidize C Do nothing for
B
Which of the following descriptions best characterizes common resources? A Common resources are those where it is hard to keep non-payers from using the good, but their use of the good does not negatively impact others' ability to use it. B Common resources are those where it is hard to keep non-payers from using the good, and their use of the good negatively impacts others' ability to use it. C Common resources are those without an external cost of production or an external benefit of production. D Common resources are those where individual consumers can be excluded from using the good, but the marginal cost is zero and so an infinite number of goods should be produced.
B
Which of the following represents the efficient amount of pollution reduction given the marginal benefits (in EOC 13.12) and the marginal costs (in EOC 13.13) of pollution reduction? You may need to generate a graph that includes both marginal costs and marginal benefits to answer this question. A ~100,000 tons of pollution reduction B ~150,000 tons of pollution reduction C ~250,000 tons of pollution reduction D ~300,000 tons of pollution reduction
B
Your local government is contemplating adding a new fireworks show to your town's Fourth of July festivities. They have calculated that the total cost of producing the show will be $3M, and your town has 300,000 residents. The show would be financed through an increase in taxes on each of these residents. Under what conditions is the provision of the fireworks show the efficient outcome? A Only if each person in town values the fireworks show at $10 or more. B If the total benefit of the show is greater than or equal to $3M, even if some individuals value the show at less than $10. C If the total benefit of the show is greater than or equal to $3M, and every person in town has a positive (greater than $0) value for the show. (In other words, no one dislikes fireworks.) D Because the fireworks can only be provided if individuals are taxed, the provision of the fireworks show cannot be efficient.
B
A quasi-public good shares all characteristics of a public good except that access to the good can be limited, at least somewhat, so that there are no free riders. Which of the following products best fits the definition of a quasi-public good? A Clean air B Streetlights C Museum D Public radio broadcast
C
In the aftermath of the financial crisis of 2008, several banking practices came into sharp focus for contributing to the crisis. One of those practices was the issuance of "subprime" mortgages - mortgages made to borrowers who were unlikely to be able to repay in the case of a recession or a decline in housing values. Banks defended their choice by arguing that if the mortgage holders defaulted on the payments, the banks themselves would be the ones taking a loss in profits. In the end, however, the default rate on these loans was so high that the country's entire financial system was at risk of collapse, and taxpayer dollars were used to keep banks solvent. This information indicates that subprime mortgages are: A Public goods B Common resources C Goods with additional social costs D Goods with additional social benefits
C
What can you say about the equilibrium quantity of production and the equilibrium price for a market with external benefits? A The equilibrium market quantity is too high and the equilibrium market price is too low, relative to the efficient level of production. B The equilibrium market quantity is too low and the equilibrium market price is too high, relative to the efficient level of production. C The equilibrium market quantity is too low and the equilibrium market price is too low, relative to the efficient level of production. D The equilibrium market quantity is too high and the equilibrium market price is too high, relative to the efficient level of production.
C
Which of the following might explain the pattern of marginal benefits of pollution reduction you calculated in EOC 13.14? The marginal benefits to pollution: A Increase with the amount of pollution reduction because a little bit of pollution doesn't have many negative side effects, whereas a lot of pollution can be harmful for health, productivity, and the environment. B Increase with the amount of pollution reduction because a lot of pollution can be harmful for health, productivity, and the environment, whereas a little bit of pollution doesn't have many negative side effects. C Decrease with the amount of pollution reduction because a little bit of pollution doesn't have many negative side effects, whereas a lot of pollution can be harmful for health, productivity, and the environment. D Decrease with the amount of pollution reduction because a lot of pollution can be harmful for health, productivity, and the environment, whereas a little bit of pollution doesn't have many negative side effects.
C
You have been charged with deciding on optimal fishing policies in order to both encourage growth in the salmon population in the Atlantic and allow fishermen to earn a living. You will need to allow some fishing, but not so much fishing that population counts are depleted for next year. Three proposals are on the table for you to choose from. Option 1: Institute a fishing "window" of 3 weeks wherein fishermen may fish as much as they wish, but after three weeks they must stop. Option 2: Institute a fishing "quota" that will limit the number of fish that any individual fisherman may harvest from the waters. Option 3: Sell a fixed number of licenses to harvest a certain number of fish. Which of these choices is most likely to produce the outcome you are interested in? A Option 1 B Option 2 C Option 3 D Do nothing
C
Consider a good with external costs. Which of the following descriptions characterizes quantities of goods between the market equilibrium quantity and the allocatively efficient quantity? A These quantities will not be produced by the private market, but the government can add these quantities to production using a subsidy, resulting in higher economic efficiency. B These quantities will not be produced by the private market, but the government can add these quantities to production using a tax, resulting in higher economic efficiency. C These quantities will be produced by the private market, but the government can eliminate these quantities from production using a subsidy, resulting in higher economic efficiency. D These quantities will be produced by the private market, but the government can eliminate these quantities from production using a tax, resulting in higher economic efficiency.
D
Demand curves in competitive markets represent which of the following? A Marginal costs of production B Average costs of production C Supplier fixed costs D Marginal benefit to consumers
D
Once a government has introduced a proper (that is, economically efficient) policy to address the market failure, the price of a good that has external benefits will be ______________ than its free market price and the price of a good that has external costs will be ______________than its free market price. A Higher; lower B Higher; higher C Lower; lower D Lower; higher
D
Suppose the government chooses to provide a public good at a zero price, and the increased consumption makes it so that one person's use begins to interfere with others' use. Think of a crowded road or a crowded park. What should the government do now to keep this market efficient? A Stop providing the good. B Close the goods to users at peak demand times. C Pay consumers to use the good. D Add prices that reflect the costs of an individual's use of the good.
D
The Green River runs through Wyoming and is used free of charge by farmers for irrigation. When there is plenty of rain, the river is a ______________. But in low-rain years, the downstream farmers can experience water levels too low for irrigation and the river is a ______________. A Good with external benefits/Common resource B Common resource/Good with external benefits C Common resource/Public good D Public good/Common resource
D
Which of these is an economically efficient manner of producing basic medical research? A Subsidize production of basic medical research by private producers B Government production of basic medical research C Tax the production of basic medical research by private producers D Either (a) or (b) will work E Either (b) or (c) will work
D
What will happen in a competitive market if consumers are unable to accurately estimate the marginal utilities of goods? A There will be no change relative to a market where consumers know marginal utilities. B Consumers may over-estimate benefits and consume too much of a good. C Consumers may under-estimate benefits and consume too little of a good. D Both b and c are possible. E All three outcomes (a, b, and c) are possible. Show Submitted Answer
E
The economically efficient amount of pollution will be zero when which of the following is true? A When costs of pollution are greater than the marginal costs of pollution reduction at all levels of pollution. B When costs of pollution are less than the marginal costs of pollution reduction at all levels of pollution. C Under no circumstances. Some pollution is always economically efficient. D Under all circumstances. It is never economically efficient to have consumers or producers force others to pay the costs of pollution.
a
In efforts to increase economic efficiency, governments should ______________ goods with external benefits. A Tax B Subsidize C Do nothing for
b