Economics Exam 3
When the benefits are high enough, firms can obtain monopoly rents through influencing legislators/regulatory agencies to promote a particular policy outcome. This is known as
Capture Theory
Which group has a greater incentive to stay informed about a potential import quota on Japanese cars?
Domestic car producers.
The phenomenon of free riding is most closely associated with which type of good?
Public goods
Expressive voting is meant to signal something about yourself to other people
True
Which of the following is an example of a positive externality?
Your neighbor plants a nice garden in front of his house.
Which of the following illustrates the concept of a negative externality?
Your sleep is disrupted by a neighbor's loud music.
A state-owned bridge is
a common resource when it is congested, but it is a public good when it is not congested.
If you give money to a homeless person and ask them to use the money to buy food, but they go buy booze instead, this is an example of ...
a principle-agent problem.
Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of
a transaction cost.
Bob is convinced that he needs to vote because of the threat of global warming. Bob votes in every election that he is eligible to vote in and bases his votes on which candidates are most concerned about global warming. Bob very much aims to make a difference; to affect policy towards ending global warming. Bob is
an instrumental voter.
Public Choice assumes that political agents...
are rational, self-interested economizers. and act on incentives and information.
When one party to an exchange has more, or better, information than the other party, economists say this is an example of...
asymmetric information
Market failure associated with the free-rider problem is a result of
benefits that accrue to those who don't pay.
Goods that are rival in consumption include both
common resources and private goods.
Goods that are rival in consumption but not excludable would be considered
common resources.
Voters are irrational because being informed is
costly.
Special interest groups tend to get their way when
d. I and II. -a policy is narrow in impact. -a policy is difficult to understand.
If you want to be a successful politician - supporting and enacting policies that lead to your election/reelection - then a formula for success is to choose policies that ...
diffuse costs and concentrate benefits.
Private goods are both
excludable and rival in consumption.
Individuals may not vote their true policy preferences if they are
expressive voters.
The benefit your neighbor receives from hearing you play your pleasant music is a
external benefit.
The Nirvana Fallacy of politics assumes that government agents have the knowledge, but not the incentives, necessary to allocate resources better than the market.
false
Someone who consumes a good but does not pay for it is a
free rider
The parable called the Tragedy of the Commons applies to goods and services such as
grazing land and fishing.
Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture
increases the value of other properties in the neighborhood.
Public choice analysis is concerned with whether political agents have the incentives to correct market failures and whether they have the _______________________ to act consistently with those incentives.
information
Public Choice
is the study of political behavior using the tools of economics.
A moral hazard
is when an agent tries to exploit an information advantage in a dishonest or undesirable way.
While this is not strictly true in reality, the theory of Nobel Prize winner George Ackerlof predicts that the only used cars bought and sold will be
lemons.
When property rights are not well established,
markets fail to allocate resources efficiently.
Principal-Agent problems are fundamentally rooted in
misalignment of incentives.
A taxi driver can visibly determine the passenger is a tourist and deliberately takes the long route to the airport, driving up the cost of the cab fare. This is an example of
moral hazard and asymmetric information
Parties with better information may be tempted to exploit their information advantage at the expense of trading partners. Examples might include a taxi driver who takes longer routes to jack up their fares; also an auto mechanic who exploits his/her customer's ignorance to recommend unnecessary "repairs." These are both examples of ...
moral hazard.
When voters tend to stress the very recent and present more than the past or future, economists say that voters are
myopic.
Pollution is a
negative externality that can be viewed as a common-resource problem.
Both public goods and common resources are
nonexcludable.
An externality is the uncompensated impact of
one person's actions on the well-being of a bystander.
When a good is rival in consumption,
one person's use of the good diminishes another person's ability to use it.
A good is excludable if
people can be prevented from using it.
The provision of a public good generates a
positive externality and the use of a common resource generates a negative externality.
When you hire a contractor to build a garage on your property, in the relationship between you and the contractor you are the
principal.
Goods that are excludable include both
private goods and club goods.
Because of the free-rider problem,
private markets tend to undersupply public goods.
According to the Coase theorem, private parties can solve the problem of externalities if
property rights are clearly defined.
People cannot be prevented from using a good if the good is a
public good or a common resource.
When the benefits from a voter staying informed are less than the costs of staying informed, we say this voter is...
rationally ignorant.
A free rider is a person who
receives the benefit of a good but avoids paying for it.
The Tragedy of the Commons results when a good is
rival in consumption and not excludable.
Dioxin emission that results from the production of paper is a good example of a negative externality because
self-interested paper producers will not consider the full cost of the dioxin pollution they create.
A male peacock displaying his large, full, and colorful tale to the female peacock is an example of
signaling.
When positive externalities are present in a market
social benefits will be greater than private benefits.
The overuse of a common resource relative to its economically efficient use is called
the Tragedy of the Commons.
Special interest groups stand to gain millions of dollars (or more) if particular laws are passed and lobby very hard for them, whereas voters stand to lose only a little and don't find opposing them worth their effort. This is because
the costs to voters are dispersed but the benefits to interest groups are concentrated.
This involves attacking an obtainable (but imperfect) option by comparing it to an unobtainable (but perfect) alternative.
the nirvana fallacy.
Public Choice is often understood as...
the tools of economics applied to politics and "politics without romance."
In the car repair market, moral hazard is a problem because
(a) and (b). -The car owner might opt not to get a repair that was actually needed for fear of being ripped off. -The car owner might pay money for a repair or service that was not needed.
Which of the following statements about a well-maintained yard best conveys the general nature of the externality?
A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.
Which of the following are features that limit adverse selection in health insurance?
All of the above -Inspections and Checkups -Group Plans - Conscientiousness
Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?
At the current output level, the marginal social benefit exceeds the marginal private benefit.
Which of the following is not a characteristic of a public good?
Because it is a free good, there is no opportunity cost.
