Econ 202 Module 8 Problem Set
Which of the following statements is FALSE about rent seeking?
Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.
Some individuals seek to use government action to make themselves better off at the expense of others. The actions of these individuals
are examples of rent seeking
Which of the following is NOT an example of rent-seeking behavior?
engaging in aggressive advertising that slams a competitor's product
Which of the following is an example of rent seeking behavior?
U.S. sugar firms convinced Congress to impose a quota on imports of sugar.
Both presidents Kennedy and Reagan proposed significant cuts in income taxes because
they believed that the tax cuts would enhance economic efficiency.
If voters prefer a to b and b to c, then if preferences are transitive
they should prefer a to c
Suppose a series of votes are taken in which each pair of alternatives is considered in turn. The first pair considered is between subsidies for education and research on Alzheimer's. The second pair considered is between Alzheimer's research and increased border security. The third pair considered is between education subsidies and increased border security. In this case, the collective preferences of the voters
turn out not to be transitive, and will not result in a consistent outcome.
Which of the following statements refers to rent seeking?
"Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws."
Economist Kenneth Arrow has shown mathematically that no system of voting will consistently represent the underlying preferences of voters. This finding is called
Arrow impossibility theorem.
Which of the following best describes the process of regulatory capture?
Bank of America encourages the FDIC-Federal Deposit Insurance Corporation- to make banks with less than $50 million of deposits pay a higher percentage into the insurance fund "for the protection of consumers."
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
The public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments (state, local, and federal) and the manner in which individual choices are made in markets. Which of the following descriptions is consistent with the difference between collective decision−making and decision−making in markets?
Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets.
What is regulatory capture?
It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.
What is meant by the term "rational ignorance"?
It means the lack of economic incentive for voters to become informed about a pending legislation.
Economists often analyze the interaction of individuals and firms in markets. Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others, a process that is referred to as
Rent seeking
The public choice model
applies economic analysis to government decision making.
According to public choice theory, policymakers
are likely to pursue their own self−interest, even if their self−interest conflicts with the public interest.
Why is a typical person likely to gather more information when buying a new car than when voting for a member of Congress?
because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the latter, a person's vote is only one of many voters and therefore, not likely to have a large impact on the outcome.
When members of Congress vote to pass new legislation, they will
fail to consistently represent the underlying preferences of voters.
Rent seeking is
lobbying or bribing politicians to gain favorable legislation or regulations.
The median voter model implies that
many people will be dissatisfied with the amount of spending on government funded projects.
The voting paradox suggests that the "voting market", as represented by elections
may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services.
The Arrow impossibility theorem states that
no system of voting can be devised that will always consistently represent the underlying preferences of voters.
One result of the public choice model is that most economists believe that
policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency.
In this context, government failure means
politicans making bad decisions for their own selfish reasons.
Rent seeking can be useful in understanding why government policies
sometimes produce results that are inefficient and harmful to the people.
One important difference between the political process and the market process is that
the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not.
