ECO 2013 Chapter 6 Study Guide Questions

Which of the following is true about the market and public sectors? a. Competitive behavior is present in both sectors. b. The public sector utilizes the price mechanism more than the private sector. c. In both sectors, individuals always pay for the goods and services they consume. d. There is more free choice for individual consumers in the public sector than in the private sector

a. Competitive behavior is present in both sectors.

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district? a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, whereas most of the costs will be imposed on voters from other districts. b. Most of the costs of pork-barrel projects within your district will be imposed on your constituents, whereas most of the benefits will accrue to voters from other districts. c. Pork producers are a powerful political lobby that will influence the actions of legislators in all districts. d. This is a trick question; in a representative democracy, there is little incentive for legislators to support pork-barrel projects.

a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, whereas most of the costs will be imposed on voters from other districts.

Assume that you are a member of the U.S. House of Representatives from your home state and district. Which of the following best explains why you have a strong incentive to get the federal government to finance pork-barrel projects in your district? a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, while most of the costs will be imposed on voters from other districts. b. Most of the costs of pork-barrel projects within your district will be imposed on your constituents, while most of the benefits will accrue to voters from other districts. c. Pork producers are a powerful political lobby that will influence the actions of legislators in all districts. d. This is a trick question; in a representative democracy, there is little incentive for legislators to support pork-barrel projects.

a. Most of the benefits of pork-barrel projects within your district will accrue to your constituents, while most of the costs will be imposed on voters from other districts.

Which of the following statements is False? a. Political activities consistent with economic efficiency tend to emerge naturally from the unconstrained democratic political process. b. Constitutional rules establishing procedures and limiting the ability of the political process to engage in redistributive activities can improve the economic efficiency of government. c. Rent-seeking activity tends to retard the economic prosperity of a nation because it takes resources away from productive private sector activities. d. Unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living of a country.

a. Political activities consistent with economic efficiency tend to emerge naturally from the unconstrained democratic political process.

Economists use the term shortsightedness effect to describe which one of the following phenomena? a. Politicians tend to support actions that have immediate and easily recognized current benefits. b. Individuals are apt to spend their income on goods that bring immediate personal benefits. c. Voters elect politicians on the basis of campaign promises, regardless of what they may do once they are in office. d. Politicians support the programs of special interest groups in order to get elected; however, special interest support may be detrimental later, costing politicians popularity after the programs are implemented.

a. Politicians tend to support actions that have immediate and easily recognized current benefits.

Which of the following is true of government activities under a system of representative democracy? a. When voters pay in proportion to benefits received, all voters will gain if the government activity is productive. b. If a majority opposes an activity, it must be counterproductive. c. When voters must pay in proportion to benefits received for an activity undertaken by the government, the activity will most likely be rejected by the majority of voters. d. Government activities must be productive in order to be eligible for vote.

a. When voters pay in proportion to benefits received, all voters will gain if the government activity is productive.

When voters pay in proportion to the benefits received from an economic action of the government, if the government activity is productive, a. all voters will gain. b. only a smaller proportion of voters will gain. c. less than a simple majority of voters will gain. d. approximately 50 percent of the voters will gain

a. all voters will gain.

Public choice analysis a. assumes individuals in the public sector act in their own self-interests. b. assumes individuals seek to serve the public interest rather than their own personal interests. c. is the study of decision making in the formation and operation of private organizations. d. assumes the government is a corrective device that takes the necessary action to offset economic inefficiency arising from market failure.

a. assumes individuals in the public sector act in their own self-interests.

Government decisions tend to be biased toward actions that have a. current benefits that are easily observable and future costs that are difficult to identify. b. current benefits and future costs that are both difficult to identify. c. future costs that are easily observable. d. clear benefits to the poor at no costs to the wealthy.

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

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 a. earmarking. b. logrolling. c. pork-barrel legislation. d. the invisible hand principle.

a. earmarking.

Which of the following refers to when legislators trade votes on legislation? a. logrolling b. the special interest effect c. rational ignorance d. the shortsightedness effect

a. logrolling

When analyzing public sector decision making, economic theory assumes that voters, politicians, and government officials will a. respond to changes in personal benefits and costs when making public sector choices. b. pursue the public interest even when it conflicts with their private interests. c. pursue primarily public interests because competition is less intense in the public sector. d. do none of the above.

a. respond to changes in personal benefits and costs when making public sector choices.

When is representative democracy most likely to lead to the adoption of an inefficient government program? a. when the program provides substantial benefits to a small proportion of voters and the costs are widespread among voters b. when both the benefits and costs of the program are widespread among voters c. when the program is financed by a user charge d. when a close relationship exists between the personal benefits received from the program and the tax cost imposed on each voter

a. when the program provides substantial benefits to a small proportion of voters and the costs are widespread among voters

According to the Bureau of Economic Analysis, government income transfer payments amounted to approximately what percent of national income? a. 5 percent b. 16 percent c. 28 percent d. 50 percent

b. 16 percent

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? a. The good is produced privately and taxes are used to provide it to consumers free of charge. b. The good is produced privately and consumers purchase it with their own money. c. The good is produced by government enterprises and the cost of its production is covered by taxes. d. The good is produced by government enterprises and consumers purchase it with their own money.

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

When the government both provides a service and covers its costs through taxation, a. the government has a strong incentive to supply consumers with desired goods at a low cost. b. consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided. c. the invisible hand will direct decision makers toward the most efficient level of output. d. Consumers have strong incentive to be cost conscious.

b. consumers are in a weak position to either discipline the suppliers or alter the quantity or quality of the service provided.

Public choice theory suggests that politicians will be most likely to favor redistribution of income from a. the rich to the poor. b. disorganized individuals to well-organized special interest groups. c. middle-income taxpayers to both the rich and the poor. d. well-organized business and labor groups to consumers.

b. disorganized individuals to well-organized special interest groups.

Public choice analysis indicates that a. because government action provides public goods, it always increases the wealth of the citizenry. b. unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living. c. constitutional rules limiting public-sector activity generally lower the economic efficiency of the overall economy. d. Politicians and voters are better able to judge the public interest than their own private interest.

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

Public choice analysis suggests that bureaucrats and public-sector managers have a strong incentive to a. economize on their spending so more funds will be available for other government programs. b. ensure that their budget is exactly the size that would be considered economically efficient. c. expand their budgets to sizes beyond what would be considered economically efficient. d. keep individual legislators fully informed as to every expenditure.

c. expand their budgets to sizes beyond what would be considered economically efficient.

Which of the following is an example of a good that is produced by the public sector but consumers purchase it in proportion to the benefit received? a. milk b. public education c. first-class mail delivery from the U.S. Post Office d. national defense

c. first-class mail delivery from the U.S. Post Office

Which of the following is legally permitted to use coercive force to modify the actions of adults against their will? a. banks b. corporations c. governments d. all of the above

c. governments

Economic theory leads us to expect that the typical voter will be uninformed on many issues because a. most issues are so complex that voters will be unable to understand them. b. even though information is free, most voters do not care. c. information is costly, and the individual voter casting a well-informed vote can expect negligible personal benefit. d. citizen apathy about political matters is inevitable, except when decisions are made by referendum.

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

Legislation that offers immediate and easily recognized benefits, at the expense of costs that are observable only in the distant future, is often enacted, even when economic inefficiency results. In economics this is referred to as the a. long-term effect. b. political-fallacy effect. c. shortsightedness effect. d. inefficiency effect.

c. shortsightedness effect.

Scenario 6-1 The quotation below relates to the following question(s). "The ideal policy, from the viewpoint of the state, is one with identifiable beneficiaries, each of whom is helped appreciably, at the cost of many unidentifiable persons, none of whom is hurt very much." (George Stigler, A Dialogue on the Proper Economic Role of the State) Which of the following groups does the quotation in Scenario 6-1 suggest would have the most influence on public sector action? a. taxpayers b. nonunion workers c. special interest groups d. consumers

c. special interest groups

Market allocation and the political process differ in that a. competition is present in the market sector but not in the political sector. b. scarcity is a constraint in the market sector but not the political sector. c. there is a one-to-one link between payment for and receipt of a good in the market sector, but this is often not true in the political sector. d. in the political sector, voters have a strong incentive to acquire information that will help them make better decisions, but in the market sector, consumers do not have much incentive to acquire information.

c. there is a one-to-one link between payment for and receipt of a good in the market sector, but this is often not true in the political sector.

In which case is the political process most likely to result in the acceptance of productive programs and rejection of unproductive political activities? a. when the benefits are highly concentrated and costs widespread among voters b. when the costs are highly concentrated and the benefits widespread among voters c. when both the benefits and costs are widespread among voters d. when the benefits accrue primarily in the future, whereas the costs are more visible during the current period

c. when both the benefits and costs are widespread among voters

Despite many differences, the market and public sectors are similar in which one of the following respects? a. In both sectors, income (or power) is distributed on the basis of the same criterion. b. Consumers in the market sector and voters in the public sector are equally well informed. c. Voluntary exchange, rather than compulsion, is characteristic of both sectors. d. It will be costly to use scarce goods, whether through the private or the public sector.

d. It will be costly to use scarce goods, whether through the private or the public sector.

Which of the following is a predictable side effect of increased government activity (e.g., taxes and subsidies) designed to redistribute income among citizens? a. improvement in the operational efficiency of government agencies b. budget surpluses c. reduction in the poverty rate d. an increase in rent-seeking activity

d. an increase in rent-seeking activity

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens? a. improvement in the operational efficiency of government agencies b. rapid economic growth c. a reduction in the amount of lobbying d. an increase in rent-seeking activity

d. an increase in rent-seeking activity

Scenario 6-1 The quotation below relates to the following question(s). "The ideal policy, from the viewpoint of the state, is one with identifiable beneficiaries, each of whom is helped appreciably, at the cost of many unidentifiable persons, none of whom is hurt very much." (George Stigler, A Dialogue on the Proper Economic Role of the State) Refer to Scenario 6-1. This statement is probably a. incorrect because voters are well informed on a wide range of political issues. b. incorrect because the political process dilutes the influence of special interest groups, because like other citizens, their members have only one vote. c. correct because the well-informed voter will favor policies that cater to the views of small groups of people. d. correct because voters who have a strong personal interest in an issue will tend to support candidates who cater to their views, whereas most other voters ignore the issue.

d. correct because voters who have a strong personal interest in an issue will tend to support candidates who cater to their views, whereas most other voters ignore the issue.

Which of the following factors weakens the case for private-sector provision of goods and services as opposed to public-sector provision? a. weak incentives for operational efficiency b. rent-seeking c. the shortsightedness effect d. externalities

d. externalities

Giving local governments more power is less dangerous than giving the same power to the national government because a. local governments generally have more strict constitutional rules they must operate under. b. it is easier to vote in local elections than national elections. c. only national-level governments are allowed to use coercive force. d. higher exit options exist at the local level--it is easier for people to move away from a bad local government.

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

The theory of public choice a. analyzes the likelihood that various public sector alternatives will be instituted. b. assumes that economic incentives influence the choices of voters. c. applies the tools of economics to the collective decision-making process. d. is all of the above.

d. is all of the above.

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is a. the difference in incentive structure motivating economic activity. b. its ability to direct resources in a manner that is more economically efficient. c. its ability to produce goods and services that people value. d. its ability to use coercive force against people to modify their behavior or force them to pay for a good or service whether they benefit from it or not

d. its ability to use coercive force against people to modify their behavior or force them to pay for a good or service whether they benefit from it or not

Legislators often gain by bundling a number of projects benefiting local districts at the expense of general taxpayers. Such legislation is called a. market failure legislation. b. the rational ignorance effect. c. public goods legislation. d. pork-barrel legislation

d. pork-barrel legislation

Legislation that offers immediate and easily recognized benefits, at the expense of uncertain costs that are in the distant future (such as financing by government debt), is often enacted even when economic inefficiency results. This can be expected because of a. a lack of incentive for operational efficiency in the public sector. b. market failure. c. the special-interest effect. d. the shortsightedness effect

d. the shortsightedness effect

Public choice theory indicates that competitive forces between candidates in elections provide a politician with a strong incentive to offer voters a bundle of political goods that she believes a. is best for the economic and political situations the country faces. b. will most likely clear the legislative process. c. will increase the welfare of society. d. will increase her chances of winning elections.

d. will increase her chances of winning elections.