Econ Final Review

Refer to figure 5-4. The efficient price and quantity are

$1.80 and 35 units, respectively

Refer to figure 4-20. The amount of the tax per unit is

$3 (measure difference between demand curves)

What percentage of Americans age 18 and over paid personal income taxes in 2009?

51 percent

Refer to Figure 4-25. After the tax is levied, consumer surplus is represented by area

A

Senator Blacklung represents a state that grows a significant amount of tobacco. Not only do many of his constituents work for businesses in this industry, but the tobacco firms also make generous donations to his reelection campaign. According to public choice theory, which of the following bills would Senator Blacklung be most likely to support?

A bill that would provide substantial subsidies for tobacco growers

Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions?

All of the above

Which of the following represents which private production tends to be more efficient than government production?

All of the above

Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency?

All of the above explain why government agencies have little incentive to be efficient

Most income transfer programs in the United States

Allocate income to concentrated interest groups, such as the elderly, large farmers, and business interests

Which of the following is a predictable side effect of increased government activity (taxes and subsidies) designed to redistribute income among citizens?

An increase in rent-seeking activity

From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to

An output of the product that is less than the amount consistent with ideal economic efficiency

Public choice analysis

Assumes individuals in the public sector act in their own self-interests

Under democratic representative government, spending on a government program will likely be larger than the amount consistent with economic efficiency when

Benefits of the program are highly concentrated, while the costs are widely dispersed among voters

In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects?

Both the benefits and costs are widespread among voters

If government taxes a firm which polluted this will

Decrease supply of the good produced

The problem created when it is difficult to exclude nonpaying customers is called the

Free-rider problem

Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to

Get them reelected

Which of the following is true regarding government expenditures in the United States?

Government expenditures as a share of GDP grew rapidly between 1930 and 1980

Giving local governments more power is less dangerous than giving the same power to the national government because

Higher exit options exist at the local level-- it is easier for people to move away from a bad local government

A good is considered a public good if it

Is both nonrival-in-consumption and nonexcludable

A sound legal system that protects individuals and their property

Is vital to the smooth operation of markets

The rational-ignorance effect refers to the

Lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election

When external benefits are present in a market,

Less of the good will be produced than the amount consistent with economic efficiency

Which of the following refers to when legislators trade votes on legislation?

Logrolling

If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be

Nonrival-in-consumption

Relative to a competitive situation, if a market lacks competition, economic theory suggests that

Output will be lower and price higher

In a market that lacks sufficient competition,

Output will generally be less than the output that is ideal from the standpoint of economic efficiency

Refer to Figure 4-25. The equilibrium price before tax is imposed is

P1

Refer to Figure 4-24. The per unit burden of the tax on buyers is

P3-P2

Which of the following is a distinguishing characteristic of a user charge?

Persons pay roughly in proportion to the extent that they use the good or service

The shortsidedness effect suggests that

Politicians have a strong incentive to support projects that yield immediate and easy recognizable benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future

Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a

Public good

The "free rider" problem occurs in connection with

Public goods

Which of the following is true?

Real federal spending per person was approximately 80 times greater in 2010 than in 1916

Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?

Relative to economic efficiency, output of the good will be too large and the price too low

Which of the following countries had the highest level of government expenditures as a share of GDP in 2007?

Sweden

Which of the following is an example of a public good?

Television broadcast signal

When market failure is present,

The conditions implied by idealized efficient allocation of resources will be absent, but it does not follow that political action will improve the situation

In the case of a private good, which of the following forms of economic organization will result in the strongest incentive for consumers and producers to economize?

The good is produced privately and consumers purchase it with their own money

If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,

The good produces a negative externality

Which of the following is true?

The incentives to engage in rent-seeking activities increase with the ease with which the political process can provide personal gain at the expense of others

Externalities are fundamentally the result of

The lack of well-defined or enforced property rights

Sellers will tend to be most concerned with customer satisfaction when

They depend on repeat customers for most of their business

Consider two goods-- one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce

Too little of the good that generates external benefits and too much of the good that generates external costs

Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. Programs that give subsidies to a small group of producers at general taxpayer expense would be considered

Type B projects, and he government would be likely to undertake many of these projects even when they were counterproductive (inefficient)

A local government operates a city recreation center with a pool and tennis courts. The center is financed through $50 annual membership fees. This type of financing is known as

User charge

Public choice theory suggests that representative government yields outcomes more consistent with economic efficiency when a close relationship occurs between the benefits received and the costs borne by each voter. Which of the following methods of financing a government program will most likely result in a close relationship between voter benefits and costs?

User charges

Public choice theory indicates competitive forces provide a politician with a strong incentive to offer voters a bundle of political goods that she believes

Will increase her chances of winning elections

The administrative, enforcement, and compliance costs of collecting taxes in the United States sum to

between 12 and 15 percent of the revenues collected

(I) Sales taxes, income taxes, property taxes, and grants from higher levels of government are the major sources of state and local revenue in the United States (II) Including both the excess burden and administration, enforcement, and compliance costs of taxes in the United States, $1 in taxes to the government imposes a cost of somewhere between $1.20 and $1.30 on the economy

both I and II are true

An analysis of market failure and government failure indicates

both the market and the government may fail to meet conditions of economic efficiency; in each individual case, he choice of market or public-sector action requires careful evaluation

In a representative democracy, government action results from the

complex interaction of all of the above

According to the economic way of thinking, personal benefits and costs influence the actions of

consumers, producers, voters, and politicians in both the private and public sectors

Government decisions tend to be biased toward actions that have

current benefits that are easily observable and future costs that are difficult to identify

Public choice theory suggests that politicians will be most likely to favor redistribution of income from

disorganized individuals to well-organized special interest groups

Senator Spendall is able to use his position on an important committee to set aside government funding specifically for a new bridge in his hometown. This is an example of

earmarking

Economics indicates that government funding of special interest projects and favoritism of some business firms relative to others will lead to

economic inefficiency because the funding will be driven by political rather than economic considerations

As government becomes larger and larger as a share of the economy, economic growth is likely to decline because

governments are involved in many activities for which they are ill-suited

In 1980, the top 1 percent of earners paid 19.1 percent of federal personal income tax. By 2008, the share of this tax collected from the top 1 percent of earners

had risen to over 35 percent

The major categories of federal government spending are

health care, national defense, Social Security, and other income transfers

An effective minimum wage

increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others

Economic theory leads us to expect that the typical voter will be uninformed on many issues because

information is costly, and the individual voter casting a well-informed vote can expect negligible personal benefit

Despite many differences, the market and public sectors are similar in which one of the following respects?

it will be costly to use scarce goods, whether through the private or the public sector

One dollar of tax revenue ends up costing citizens in the economy

more than one dollar

Which of the following is a distinguishing characteristic of a user charge?

persons pay roughly in proportion to the extent that they use the good or service

Refer to figure 4-17. If the government imposes a price ceiling in this market at price of $5.00, the result would be a

shortage of ten units

As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to

spend more time rent seeking

Compared to 1980, the top marginal federal income tax rate today is

substantially lower and the rate structure is less progressive than in 1980

The private sector of tax revenues is equal to the

tax revenue plus the cost of tax compliance and the excess burden of taxation

The deadweight loss resulting from levying a tax on an economic activity is

the loss of potential gains from trade from activities forgone because of the tax

Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely undertake many projects that would be considered inefficient or counterproductive?

type B

Public choice analysis indicates that

unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living

Public choice theory suggests that politicians will be most likely to favor redistribution of income from

unorganized taxpayers to well-organized interest groups

A local government operates a city recreation center with a pool and tennis court. The center is financed through $50 annual membership fees (required for members to use it

user charge

Economic theory indicates that the behavior of

voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector-- that incentives matter

In which case is the political process most likely to result in the acceptance of productive programs and rejection of unproductive political activities

when both the benefits and costs are widespread among voters

The 18th century Scottish philosopher Alexander Tytler argued that democracy

would tend to collapse from excessive debt once a majority of voters discovered they could vote themselves benefits at the expense of others