Chapter 6 Homework

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

Which of the following statements regarding the rational ignorance effect are true?

A rationally ignorant voter may find it difficult to gauge the benefits of voting because candidates take stands on a wide range of issues, and the voter does not get to pick and choose among a candidate's good and bad positions. Explanation: A voter may choose to be uninformed if he or she perceives that the marginal benefit of being politically informed is less than the marginal cost of obtaining information about the positions of candidates on various issues. It may seem easier and simpler to choose a candidate based on party affiliation or public appearances alone. The voter may also find it difficult to gauge the benefits of voting when a limited number of candidates take stands on a wide range of issues. The fact that a voter cannot pick and choose among a candidate's good and bad policy positions may further discourage the voter from becoming informed and participating in the political process. If the voter expects the marginal cost of obtaining information about candidates to exceed the marginal benefit, he or she may rationally decide to remain ignorant. Similarly, if the voter judges that the cost of casting a vote exceeds the benefit of doing so, he or she may avoid voting altogether, leading to lower voter turnout. Voters do not get to pick and choose among a candidate's desirable and undesirable political positions. Thus, a voter may decide to vote for a candidate who holds a position that is not in the voter's best interest, if the voter feels that the candidate's other positions make that candidate the best choice. This is sometimes referred to as the bundle purchase problem, which is distinct from rational ignorance. Rational voter ignorance refers to a voter's decision to avoid political information when the costs of acquiring such information exceed the benefits of doing so. The decision to remain politically ignorant under this model is not motivated by explicit payment.

Why are bureaucracies often less efficient than private companies at producing public goods?

Economists believe that bureaucrats, like everyone else, seek to maximize their welfare as best they can. However, because bureaucrats are legally shielded from market forces, the incentives they face may not induce them to produce the socially efficient quantity of public goods. Indeed, one theory holds that because the prestige of bureaucrats partially depends on the size of their budgets, bureaucrats will seek to maximize their own budgets rather than maximizing social welfare.

Reasons why voters are not usually well informed on the issues and positions of candidates: - The rational ignorance effect. - Voters tend to simply rely on information supplied to them by candidates via political advertising.

Explanation: Because electoral outcomes in a democracy are determined collectively by thousands and in some cases millions of voters, the probability that an individual voter will affect the outcome of an election is virtually nil. Individual voters thus have little incentive to spend time and effort seeking the information needed to cast an informed ballot and may instead rely on information supplied by candidates via political advertising. Economists refer to this lack of incentive as the rational ignorance effect.

Examples of the shortsightedness effect: A year before reelection, the governor of your home state increases the expenditures on education, despite their negative effects on state budget deficits in future years. As of 2010, some estimates showed the U.S. government's Social Security program would face significant unfunded liabilities in the future. That is, the government may have promised benefits to future retirees without levying enough in taxes to pay the benefits.

Explanation: The shortsightedness effect explains the tendency of politicians to enact measures that will further their reelection prospects, with little or no regard for the future beyond their terms in office. The shortsightedness effect suggests that vote-seeking politicians will overspend on programs or promise a lot of future benefits without levying the unpopular taxes necessary to finance those benefits. By the time the public must confront the unfunded liabilities, many current politicians will long be out of office. The other answer choice is incorrect because it is an example of pork-barrel legislation. Pork-barrel legislation is the term used to describe the bundling of unrelated projects benefiting many different interests into a single bill.

T/F: Private companies should own things like forests, which take decades to develop, because private companies have longer term outlooks.

FALSE Corporate officers, although they surely care about the next few months and the profits during that time, also care about the value of the firm and its stock price. If the stock price rises sufficiently in the next few months - as it will if investors believe that current investments in future-oriented projects (planting new trees, for example) are sound - then the officers will find their jobs secure even if current profits do not look good. Rights to the profits from those (future) trees are salable now in the form of the corporation's stock. There is no such mechanism to make the distant fruits of today's investments available to the political entrepreneurs who might otherwise fight for the future-oriented project. Only if the project appeals to today's voters, and only if they are willing to pay today for tomorrow's benefits, will the program be a political success. In any case, the wealth of the political official is not directly enhanced by his or her successful fight for the project. See Section: Shortsightedness Effect.

True or False: Special interest issues provide substantial widespread benefits to citizens while imposing a large individual cost only on the wealthiest citizens.

False When the welfare of a special-interest group conflicts with that of a widely dispersed, unorganized majority, the legislative political process can reasonably be expected to work to the benefit of the special interest. See Section: When the political process works poorly.

How might increasing the level of government transfers reduce the size of the economic pie?

Increased transfer payments require an increase in taxes (usually income taxes), reducing the rewards of work and productive activity. Higher taxes also encourage people to devote their resources to protecting their income from redistribution, rather than funneling resources into productive activities. Moreover, as transfer payments increase, the rewards of rent seeking rise, which can lead people to spend more time lobbying the government and less time producing goods and services. Rent seeking refers to actions undertaken by individuals or groups to shape public policy in ways that transfer more income to themselves or the projects they endorse.

pork-barrel legislation

Pork-barrel legislation is the term used to describe the bundling of unrelated projects benefiting many different interests into a single bill. Therefore, the new vote combining the missile and lighthouse proposals is an example of pork-barrel legislation. This trading of votes to gain support for legislation is also referred to as logrolling. It is also important to understand the meanings of the incorrect answer choices. The shortsightedness effect refers to political bias in favor of projects that yield highly visible benefits in the short term in exchange for difficult-to-define future costs. The rational ignorance effect arises because voters have little incentive to cast informed votes when the chance that their vote will decide an election is very low. Finally, transfer payments, such as Social Security, are transfers of income from a tax-paying group to a recipient group.

Public choice analysis can be defined as an application of economics to the operation of the political process.

Public choice analysis is a branch of economics that applies the principles and methodology of economics to the operation of the political process. Public choice analysis therefore links the theory of individual behavior to political action, analyzes the implications of economic theory in the political realm, and tests these implications against real world events. See Section: Political decision-making: An overview.

The Assembly, the legislature of the fictional country of Manufa, is considering legislation that will generate benefits of $15 million and costs of $11 million. For perspective, Manufa's population is 60 million. Passing the legislation is EFFICIENT, and if everyone in Manufa shared equally in both its benefits and its costs, the Assembly will vote FOR the legislation. If the costs of the legislation are concentrated among a few people instead of widespread among the population, those people will be willing to spend up to $11 MILLION lobbying the Assembly against the legislation. (Note: Assume that the benefits are widespread; therefore, you can ignore them in the calculations of the few who experience the costs.) The less widely spread are the benefits of the legislation, the HIGHER is the likelihood of lobbying for the legislation by those who will incur its benefits. Suppose that, as before, the costs of the legislation are concentrated among a small group, the benefits are very widespread, and the Assembly is responsive to lobbying. The likely amount spent on lobbying for the legislation is $0 MILLION , in which case the Assembly will likely vote AGAINST the legislation.

This legislation is efficient because its benefits, $15 million, are greater than its costs, $11 million. Because both the benefits and costs of the legislation are widely dispersed through the population, a voter will realize more benefits than costs from the legislation. In turn, representatives in the Assembly, seeking the approval of voters, will vote for the legislation. If lobbied sufficiently, a vote-seeking legislature can be convinced to vote against efficient legislation. The willingness to spend on lobbying by those who will lose from the legislation depends on how much they will lose overall if the legislation is passed. In this case, ignoring the benefits to the group (as the benefits are widely dispersed across the population), the overall costs will be $11 million. Therefore, they will be willing to spend up to $11 million lobbying for the legislation. In effect, $11 million is their demand for lobbying that would ensure that the legislation does not pass. The more widespread the benefits of legislation are, the less incentive an individual has to spend time and money supporting it, and vice versa. For example, if the benefits were completely widespread, the benefits of the legislation per person would be the total benefits divided by the population: $15 million60 million=$0.25 per person$15 million60 million=$0.25 per person. This amount is very unlikely to motivate anyone to lobby for the legislation. Conversely, if the benefits were completely concentrated so that only one person experienced them, that person would gain $15 million if the legislation went ahead. This amount is very likely to motivate a lobbying effort. When the benefits of legislation are very widespread, there is little chance of lobbying by the people who will benefit from the legislation. As a result, there most likely will be nothing spent lobbying for the legislation. When legislatures are subject to lobbying, they respond to whoever lobbies most. In this case, opponents of the legislation would be willing to spend up to $11 million, which is considerably more than the $0 million likely to be spent by people who will benefit from the legislation, so the Assembly will likely vote against the legislation.

Indicating which of the following government expenditures or programs provide the best examples of transfer payments.

Under transfer payment programs the government pays individuals directly rather than offering them goods or services. Many government programs use transfer payments as a means of distributing wealth. The recipients of transfers do not provide goods or services in exchange for payments, which distinguishes transfer payments from other government payments. Social Security is a program that collects revenue through a payroll tax (a tax on labor income) and distributes it to retirees. Social Security, therefore, transfers income from current workers to current retirees. Welfare payments (officially Temporary Assistance for Needy Families, or TANF), such as food stamps, transfer tax revenue from all taxpayers to those who meet the program's eligibility requirements. Government spending on interest payments and education involves an exchange of dollars for goods or services—such as loans or educational software. Therefore, these programs do not use transfer payments.

Rina believes that even when the "right people" are elected to political positions, government efficiency may not much improve, due to pork-barrel legislation. Is she correct?

Yes The problem is not so much that the "wrong guys" won the last election as it is the incentive structure confronted by political decision-makers. Even if the "right people" were elected, they would be unlikely to improve the efficiency of government, at least not very much, given the strong incentive to support special-interest and shortsighted policies and the weak incentives for operational efficiency when decisions are made by the political process. See Section: When the political process works poorly.


संबंधित स्टडी सेट्स

ECON 101 Ch. 29: Saving, Investment, and the Financial System

View Set

ATI and FA Davis Practice Questions = Lower GI

View Set

Disorders of the Musculoskeletal System

View Set

Unit 5 - Childhood, Gender and Demographic Change

View Set

Chapter 3 -- Self Test Questions

View Set