Econ 202 Ch. 8

The public choice model

applies economic analysis to government decision making.

Which of the following statements about rent seeking is false?

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

The appropriate charge for trash disposal should be set by a) The opportunity cost of using the landfill, b) The cost of the trucks and labor needed to haul trash away, c) The impact of buried plastic bottles that only slowly degrade. d) All of the above. e) A and B above.

A and B above.

The key problem(s) with externalities is that a) Private costs do not equal social costs. b) Private benefits do not equal social benefits. c) The government is often inefficient. d) All of the above. e) A and B above.

A and B above.

The video showed that a) When you have three or more people and three or more choices, the winner can depend strictly on the order in which things are considered. b) Voting mechanisms can generate circular outcomes, so the "will of the people" cannot be determined by voting. c) Voting is the best way to solve problems of externalities. d) A and B above. e) A and C above.

A and B above.

To establish Arrow's theorem you need to a) Consider who would win when you vote in various ways, b) Show that the outcome depends on the order in which things are compared, c) Show that politicians act strategically. d) All of the above. e) A and B above.

A and B above.

To evaluate recycling, you must consider a) The demand for recycled products, b) The incremental costs to society for recycling products, c) The value of the land used for landfills, d) All of the above. e) B and C above.

All of the above

Key limitations on the government correcting "market failures" include: a) Information b) Misaligned incentives between the government and citizens c) The incentive of the government to tax and spend to help politicians get elected or re-elected. d) All of the above

All of the above.

Restaurant owners have an incentive to a) Fully account for the value impact of restaurant smoking on nonsmokers. b) Fully account for the value of restaurant smoking to smokers. c) Take into account how smoking shifts the overall demand curve for restaurant meals. d) All of the above.

All of the above.

The key to solving problems associated with smoking in restaurants is to

Assign property rights to restaurant owners.

The central question In trying to determine whether to involve the government in an economic issue is

Determining whether or not the government can be relied on to make things better.

(T/F) Banning smoking in restaurants is clearly economically efficient because passive smoke is harmful.

False

(T/F) Economics shows that it is inefficient to recycle plastic bottles because they have little value.

False

(T/F) If voters lack an economic incentive to become informed about pending legislation, then their preferences become a constraint on legislators voting for rent-seeking legislation.

False

(T/F) It is well-known that the use of landfills effectively destroys the value of land for subsequent use.

False

(T/F) Recycling is not an economic problem because it involves running out of basic resources that our children might need.

False

(T/F) Recycling is not an economic problem because there is only so much land that can be used for landfill, and that land is substantially damaged by the creation of garbage dumps.

False

(T/F) Smoking in restaurants is generally a bad idea because of the diseases caused by passive smoking.

False

(T/F) The best solution to water pollution is to make the responsible people clean the water and return it to its natural state.

False

(T/F) The government can be relied on to efficiently solve problems associated with pollution through (Pigovian) taxes.

False

(T/F) The point of the video is that the government can seldom enhance economic efficiency.

False

(T/F) The social problem of smoking in restaurants is caused because smokers want to pollute the air, causing harm to people around them.

False

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture?

Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

Beginning in the 1950s economists began to investigate incentives within government. They found that:

One should be cautious in calling on the government to improve economic performance.

The key to Viscusi's findings about the net impact of smoking on healthcare costs is that

People who smoke need more medical care, but they also (unfortunately) tend to die younger, and that creates an offsetting reduction in health care costs.

The economically efficient amount of recycling will occur if

Recyclers pay the full cost of picking up recycled products,

Megan McArdle argues that regulatory capture happens for all of the following reasons except

Regulators want the regulated industry to spend a lot of time and effort on compliance.

A key advantage of assigning property rights to owners of restaurants is that

Smokers and nonsmokers are likely to be able to eat meals the way they like.

The U.S. government has imposed quotas on the importation of sugar that makes sugar prices higher because

Sugar farmers lobbied for regulation that would increase their profits by limiting competition.

W. Kip Viscusi studied tobacco smoking and concluded that

The external costs and benefits of smoking were about equal, so there wasn't a significant negative externality to smoking.

Arrrow's theorem investigates:

The impossibility of determining the "will of the people" by voting.

Sam Peltzman's paper, "Toward a More General Theory of Regulation," argued that regulators would reach an equilibrium when

The marginal benefit to the regulator of providing special treatment to producers equals the marginal cost of angering consumers into voting to remove the regulator.

The opportunity cost of using land for a landfill is determined by:

The value of the land before the landfill was developed, minus the cost of the land after the landfill is full.

The net effect of smoking in a restaurant is to

There is no general answer.

(T/F) Arrow's impossibility theorem shows that political outcomes often critically depend on the order in which things are considered.

True

(T/F) One problem with using taxes to solve economic externalities is that politicians may spend the money on things they like, rather than things their constituents want.

True

(T/F) Recycling is an economic issue because the goods that are recycled, the land for landfills, and the trucks and labor needed for both recycling and trash disposal are all examples of scarce resources.

True

(T/F) Rent-seeking behavior, unlike profit-maximizing behavior in competitive markets, wastes society's scarce resources.

True

(T/F) The possibility of "government failures" should be evaluated before getting the government involved in addressing "market failures."

True

(T/F) The social problem of smoking in restaurants because smokers and nonsmokers want to use the air in different ways.

True

(T/F) The video indicated that there is a significant difference between recycling fluorescent lights and plastic bottles.

True

Economists investigate voting mechanisms because:

Voting systems are just another method for allocating resources.

Sewage treatment is an example of

an eternality

Which of the following is not an example of rent-seeking behavior?

engaging in aggressive advertising that slams a competitor's product

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are

examples of rent seeking.