ECON E-202 FINAL

According to the shortsightedness effect A. politicians tend to favor projects with short-run benefits and long-run costs. B. politicians tend to favor projects with short-run benefits and short-run costs. C. politicians tend to favor projects with long-run benefits and short-run costs. D. politicians tend to favor projects with long-run benefits and long-run costs.

A

Direct income transfers account for approximately what percentage of total government spending? A. 50% B. 60% C. 30% D. 10%

A

Collecting taxes isn't cheap. There are administrative costs...collection costs....and cost of complying with tax law. Currently, this process sums up to A. between 1 and 2 percent of the revenues collected. B. between 12 and 15 percent of the revenues collected. C. more than half of the revenues collected. D. between 5 and 6 percent of the revenues collected.

B

In the Macroeconomic Supply & Demand model, the AD for goods and services is composed of the purchases made by A. households and foreigners (net exports). B. consumers, investors, governments, and foreigners (net exports). C. businesses and governments. D. businesses, bondholders, and foreigners (net exports).

B

The 3 reasons why the aggregate demand curve slopes downward are A. the international substitution effect, the net exports effect and the interest rate effect. B. the real balance effect, the international substitution effect and the interest rate effect. C. the net exports effect, the real balance effect and the short run effect D. the interest rate effect, the short run effect and the free rider effect

B

The opportunity cost of a decision is A. the total time spent by all parties in carrying out the action. B. the value of the best opportunity that must be sacrificed in order to take the action. C. the cost of all alternative actions that could have been taken, added together. D. the monetary payment the action required.

B

When an economy has a recessionary gap of $40 billion, and the MPC is .80, effective fiscal policy dictates that taxes be reduced by A. $40 billion B. $8 billion C. $10 billion D. there isn't enough information to determine how much taxes should be reduced.

B

When government imposes price controls in a market, A. buyers and sellers both become better off. B. non-price factors become more important in the rationing of the good. C. shortages and surpluses are eliminated. D. efficiency in the market is enhanced.

B

The multiplier principle is A. important because it was central to economic theory before Keynes. B. important because it illustrates why a small change in income causes a large change in saving. C. important because it shows why small shifts in investment have a powerful influence on national income. D. important because it implies that investment will help stabilize the economy.

C

The rational-ignorance effect is A. a result of the limited incentive of the news media to cover political campaigns. B. a result of the lack of a college education on the part of most voters in the United States. C. a result of the expectation of individual voters that their vote will not be decisive. D. a result of externalities that lead to an excess supply of information.

C

Why would you use the GDP deflator? A. to calculate changes in the price of food and other consumer goods. B. to adjust nominal GDP for changes in the unemployment rate. C. to adjust nominal GDP for changes in the price level. D. to adjust nominal GDP so as to include the problem of externalities

C

Define "inflation" and explain why it is bad for the economy.

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. ... Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation's currency. From a cost perspective, inflation can be bad as goods cost more and it erodes the value of cash. From an investment perspective, inflation can be viewed as good because assets have more value over time.

Discuss the difference between real and nominal GPD? Be sure to highlight why these differences are important when comparing GDP from year to year.

Nominal GDP is actual change in GDP year over year. Real GDP is Nominal GDP adjusted for the changes in prices, i.e., the price level (in most cases, inflation).

Define "crowding out." Discuss (in your own words) the impact it has on the macro economy.

One of the most common forms of crowding out takes place when a large government, like that of the U.S., increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy's lending capacity and of discouraging businesses from making capital investments.

In the module, there was a 1min 30 sec video which discussed the importance of prices and their role in the economy. In addition, I provided some additional information about their importance. Please share and discuss.

Prices are incentives wrapped in knowledge. They determine what is produced, how it is produced, and how much people get.

List and discuss (in your own words) the functions of government economist see as legitimate roles.

Protective & Productive functions. page 95-96

Discuss, in your own words, the key teachable economic principles in 1) "iPencil" & 2) the "Steak to Market" videos provided in your modules. Why are these principles so important to the economy and where to they come from?

Key aspects - Adam Smith's invisible hand; people working in their own self interest to deliver products to market...no mastermind, but the free market at work. Crazy - a $.10 pencil pays so many peoples salary....not a few...but millions.

The price elasticity of demand for a commodity is determined primarily by the A. availability of good substitutes for the good. B. size of the consumer surplus. C. incomes of consumers. D. availability of complementary goods.

A.

David is on a temporary layoff from his factory job. BLS calls David to take a phone survey. After the conversation, BLS said David is A. unemployed and out of the labor force. B. employed and in the labor force. C. employed and out of the labor force. D. unemployed and in the labor force.

D

Is Discretionary Fiscal Policy (taxes & spending) an Effective Stabilization Tool? What of their Supply Side effects, namely taxes?

1. Proper timing of discretionary fiscal policy is both difficult to achieve and crucially important; and 2. Fiscal policy is much less potent than the early Keynesian view implied. The supply-side effects of a tax change are fundamentally different from the demand-side effects. On the demand side, lower taxes increase the after-tax incomes of consumers and thereby stimulate consumption and aggregate demand. On the supply side, lower tax rates increase the incentive of people to work, supply resources, and use them more efficiently and thereby increase aggregate supply. Supply-side economics should not be viewed as a short-run countercyclical tool. It will take time for people to react to the tax cuts and move their resources out of investments designed to lower their taxes and into higher-return, production-oriented activities. The full positive effects of lower marginal tax rates will not be observed until both labor and capital markets have time to adjust fully to the new incentive structure. Supply-side economics is a long-run, growth-oriented strategy, not a short-run stabilization tool.

Provide a graph that shows a positive externality. Label ALL the parts and discuss (in your own words). Provide the example utilized in the modules for a positive externality and discuss the implications this externality has on the marketplace.

A positive externality is when a consumed/produced good is beneficial to an outsider. For example, people at IU who walk to class instead of driving cause a lot less traffic and there results a net benefit for the other people at IU.

List the five characteristics of a successful free market system that I suggested you remember for this test and thoroughly discuss each one in your own words.

1.) Protection of private property rights: the ability to take legal action to defend what is rightfully yours through the judiciary branch. It is clearly stated in a country's legislation how far they will go to protect property rights. 2.) Voluntary exchange with flexible prices: the ability for a market's supply and demand to determine the prices for a market. This freedom allows the market to take its normal course and avoids shortages and surpluses. 3.) Market incentives in a price system that rewards and motivates: goes with the Invisible Hand of the market. As long as individuals continue to work for profitability through personal gains, a social good will occur. 4.) Stable prices/stable monetary system: basically stating that prices and the value of currency will not change drastically, destroying the economy. The market is supported by a currency that stacks up well against others and hasn't been subject to too much inflation. 5.) Climate of trust: common feeling that the good in people will emerge in the market and firms and individuals will not be taken advantage of. Also, a strong government backing the market gives people hope and trust.

Frictional unemployment is A. the result of imperfect information and temporary periods of unemployment while workers are changing jobs. B. the result of not enough jobs for everyone to be employed. C. the result of unemployed workers' skills not matching those needed for the available jobs. D. the result of a decline in the demand for labor, such as during a recession.

A

Gross domestic product is... A. the market value of final goods and services produced within a country during a time period. B. the compensation received during a period for labor services plus interest, rents, and corporate profits. C. the market value of all domestic assets, regardless of whether they are owned by citizens or foreigners. D. the market value of all goods and services exchanged within a country during a time period

A

In a world where capital moves rapidly across national boundaries A. if a larger budget deficit leads to higher real interest rates, there will be an inflow of foreign capital, which will cause the dollar to appreciate and net exports to decline. B. if a larger budget deficit leads to higher real interest rates, there will be an inflow of foreign capital, which will cause the dollar to depreciate and net exports to increase. C. if a larger budget deficit leads to higher real interest rates, there will be an outflow of foreign capital, which will cause the dollar to depreciate and net exports to increase. D. if a larger budget deficit leads to higher real interest rates, there will be an outflow of foreign capital, which will cause the dollar to appreciate and net exports to decline.

A

Markets may have difficulty providing the proper quantity of a public good because A. the proper quantity of a public good because individuals will tend to become free riders, and private firms will have difficulty generating enough revenue to produce an efficient quantity of the good. B. the proper quantity of a public good because the good generally has a very large value to consumers relative to its cost of production. C. the proper quantity of a public good because the large profit involved in the production of a public good is generally too much for private firms to effectively pay out to shareholders. D. the proper quantity of a public good because the good is one that tends to benefit a large number of people.

A

Supply-side economic policies are best viewed as A. a long-run strategy to promote economic growth. B. a short-run countercyclical tool. C. a strategy for the control of long-run inflation. D. a stabilization tool to smooth the ups and downs of the business cycle.

A

This year's GDP would include: A. the value of a new domestic automobile, at its sale price B. the face value of a life insurance policy paid to a woman at the death of her husband C. a sale of Microsoft stock from one individual to another D. the value of a used car, at its sale price

A

What would cause (and did in the 2008 crisis) a negative shift in AD? A. falling housing and stock prices B. an increase in the real rate of interest C. a rise in the value of the U.S. dollar D. optimism about future economic conditions

A

What would cause a positive shift in current AD? A. sharp increase in the value of stocks owned by Americans B. increased fear that the U.S. economy was going into a recession C. a recession in Canada, Mexico, and Western Europe D. an increase in the real interest rate

A

When Keynesian equilibrium is present, Correct! A. aggregate demand for goods and services will equal the current rate of output. B. business inventories will be increasing. C. full employment must be present. D. the actual rate of unemployment must equal the natural rate of unemployment.

A

When the Federal Reserve bank uses the money supply to fix recessionary or inflationary gaps, we call it A. monetary policy. B. cyclical policy. C. fiscal policy. D. industrial policy.

A

Which of the following is likely to push the federal debt increasingly higher in the coming decades? A. increased expenditures on the Social Security and Medicare programs B. increased political pressure to balance federal budgets C. a strong rebound from the recession of 2008-2009 D. an increase in tax revenues as the baby boom generation retires

A

Which of the following provides the clearest statement of the Ricardian equivalence theorem? A. The finance of government spending with additional debt is essentially the same thing as finance with higher taxes because the larger debt implies higher taxes in the future. B. Both an increase in government expenditures and a reduction in taxes will provide a substantial stimulus for aggregate demand. C. When additional debt is used to finance a tax cut, the lower taxes and higher interest rates will exert an equivalent impact on aggregate demand. D. A 10 percent reduction in tax rates will reduce tax revenues by 10 percent.

A

You have read and heard that economics is primarily the study of A. the efficient allocation of scarce resources in an effort to satisfy wants that are virtually unlimited. B. how to operate a business successfully. C. the methods business firms use to reduce their costs of production. D. how to make money in the stock market.

A

List and discuss the intended or the unintended consequences of subsidizing US sugar growers. Why does Congress continue to support this program year after year given its current economic outcomes?

Americans are worse off because their resources are wasted on producing a good they are ill-suited to produce and one that could be obtained at a substantially lower cost through trade. Given the sizable impact the restrictions have on the personal wealth of sugar growers, it is sensible for the growers, particularly the large ones, to use their wealth and political clout to help politicians who support their interests. This is precisely what they do.

When the government collects one dollar of tax revenue, how much does it cost to collect, transfer, and finance a government program? A. none of the available answers are correct B. more than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production C. less than one dollar because the administration of and compliance with the tax laws creates jobs for people D. one dollar

B

As the marginal propensity to save increases, the spending multiplier A. becomes indefinable. B. remains constant. C. decreases. D. increases.

C

Countries with higher rates of saving, A. other things being constant, will have higher rates of investment, but slower growth. B. other things being constant, will be operating at less than full employment and potential output. C. other things being constant, will have higher rates of investment and growth. D. other things being constant, will have smaller GDPs than countries with lower rates of saving.

C

Current political talk is of the importance of jobs to the economy. Are jobs the key to economic progress and the achievement of high income levels? A. Yes, as long as people are working, real income levels will be high. B. Yes, when full employment is present, income levels will be at their maximum. C. No, it is not just employment, but employment that expands production of goods and services that others value highly relative to cost. D. Uncertain, additional employment will increase real income only when the general level of prices is unchanged.

C

Currently, the national debt (credit card) of the United States is approximately A. $15 Trillion. B. $10 Trillion C. $22.5 Trillion. D. $12 Trillion.

C

If you wanted to measure Gross Domestic Product and decided to apply the expenditure approach as your measuring methodology, the major components would include: A. employee compensation, corporate profits, depreciation, and indirect business taxes B. employee compensation, rents, interest, self-employment income, and corporate profits. C. consumption, investment, government consumption and gross investment, and net exports. D. consumption, investment, indirect business taxes, and depreciation.

C

Special-interest programs are A. highly attractive to vote-seeking politicians because low-income recipients are the primary beneficiaries of special-interest programs. B. highly attractive to vote-seeking politicians because these programs are highly efficient, and therefore, they tend to enhance the general welfare of the populace. C. highly attractive to vote-seeking politicians because members of special interest groups favoring these programs feel strongly about them while most other voters are rationally uninformed about them. D. highly attractive to vote-seeking politicians because members of special interest groups favoring these programs are less likely to vote than the taxpayers who pay for them.

C

The 4 primary markets that A. coordinate the circular flow of income are government, household goods, bond, and business. B. coordinate the circular flow of income are financial, corporate, stock, and loanable funds. C. coordinate the circular flow of income are goods and services, resources, loanable funds, and foreign exchange. D. coordinate the circular flow of income are consumption, investment, stock, and government.

C

The business cycle measures A. the growth of small businesses into major corporations. B. periods of increases and decreases in the rate of inflation. C. fluctuations in the level of real output and employment. D. changes in products that occur from improved technology.

C

Which of the following best explains the political attractiveness of debt financing relative to taxation? A. Debt financing reduces the attractiveness of special-interest spending. B. Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost. C. Debt financing pushes the visible cost of government into the future. D. Debt financing exposes the current costs of government programs; taxes do not.

C

Which of the following is a correct statement? A. Fiscal policy involves the control of the money supply by the Federal Reserve Bank. B. Monetary policy is the use of tax and spending policies by the Federal Reserve Bank. C. Fiscal policy is the use of tax and spending policies by Congress and the president. D. Monetary policy involves the control of the money supply by Congress and the president.

C

Graph & label all the parts for: 1) Consumer Surplus & 2) Producer Surplus

Consumer surplus is the difference between the maximum price the consumer was willing to pay, and the price they actually paid. On the other hand, producer surplus is the difference between the market selling price of a good and how much a supplier would accept for that good. Essentially, whichever area on the graph is shaded in more, the greater the benefit was for either the producer, or the consumer. It's worth noting that a tax wedge will put a large dent in both the consumer and producer surpluses.

As MPC increases, the spending multiplier A. becomes indefinable. B. remains constant. C. decreases. D. increases.

D

As the size of government increases as a share of the economy, A. the rate of return derived from projects undertaken by the government will tend to increase. B. the burden of deadweight losses of taxation generally diminishes. C. the activities of government are generally limited to protective functions such as public safety , national defense, and provision of a limited set of public goods. D. the government generally becomes more heavily involved in unproductive and even counterproductive activities.

D

During the last 4 decades, federal spending has A. been virtually unchanged, but federal spending as a share of GDP has increased sharply. B. shifted away from health care and income transfers and toward spending on national defense. C. been virtually unchanged, but federal spending as a share of GDP has declined substantially. D. shifted away from national defense and toward spending on income transfers and health care.

D

Economic efficiency... A. requires that individuals produce at their maximum level. B. requires that only long-lasting, high-quality products be produced without regard to cost. C. requires that income be distributed equally among consumers. D. requires that all economic activity generating more benefits than costs be undertaken.

D

Madison is a third-grade public school teacher who doesn't own a car and uses public transportation. According to public choice theory, which of the following four politicians for a public office would Madison be most likely to vote for in the upcoming election? A. Politician D proposes an across-the-board increase in state income tax rates and using the money to improve the highway system. B. Politician C proposes increasing the property tax on personal automobiles and using the money to increase the benefits paid to unemployed workers. C. Politician B proposes an across-the-board increase in state income tax rates and using the money to increase the benefits paid to unemployed workers Correct! D. Politician A proposes increasing the property tax on personal automobiles and using the money to increase teacher salaries by 10 percent.

D

Politicians like government spending programs that create jobs are often popular because A. the benefits of job creation are always greater than the costs. Jobs are the key to economic progress. B. when spending programs are funded by the government there are no secondary effects. C. if a spending program is approved by Congress, it means that the value of what is produced is greater than the value of the resources used to produce it. D. the created jobs are highly visible, while the secondary effects of lost jobs in other areas, higher interest rates, and higher future taxes are less visible.

D

The share of Americans who pay no personal income tax A. has been relatively constant at approximately 33 percent throughout 1975-2010. B. was relatively constant near 33 percent between 1975 and 2000, but it has fallen during the past decade, receding to only 18 percent in 2010. C. rose steadily from 18 percent in 1975 to nearly 50 percent of adult Americans in 2000, but it receded to less than 40 percent in 2010. D. was relatively constant near 33 percent between 1975 and 2000, but it has increased during the past decade, reaching nearly half of adult Americans in 2010.

D

Transfer payments are A. payments made to individuals who are employed by the government. B. omitted from the government expenditure figures. C. payments made to individuals who provide goods and services to the government. D. transfers of income from taxpayers to recipients who do not provide current goods and services for the payments.

D

Which of the following best explains why making automobiles completely safe is not efficient? A. The benefit from additional automobile safety will generally rise as automobiles are made safer, more than offsetting the opportunity cost involved. B. Because human life is priceless, automobile safety generally doesn't matter. C. Economic efficiency suggests that automobiles should be made as safe as humanly possible. D. After some level of safety is reached, making cars even safer will not be worth the additional cost.

D

Widespread acceptance of the Keynesian theory of fiscal policy A. caused most economists to reject the public choice view of budget deficits. B. increased the pressure for a constitutional amendment mandating that the federal government balance its budget. C. was based on the view that continual budget deficits would help stabilize the economy. D. relaxed the political pressure to balance the budget and, hence, paved the way for the persistent budget deficits of the last five decades.

D

Explain expansionary fiscal policy.

Expansionary fiscal policy is enacted when government spends more to stimulate the economy. This can be done in a few different ways with the same outcome: increasing the flow of money in the economy to in turn increase aggregate demand. This is done by slashing taxes and or increasing government spending, allowing individuals to have more expendable income to spend on goods, creating a stimulus growth in the economy.

List and discuss the major categories of federal spending.

Federal spending is divided into two main categories: discretionary and mandatory, or nondiscretionary spending. Discretionary spending is at the hands of a budget, and includes things like national defense and education systems. Mandatory spending is comprised of promised federal programs like social security or medicare, and other things like miscellaneous government spending, pensions, and interest.

Discuss the differences between the Expenditure Approach and the Cost-Income Approach of computing GDP.

GDP counts only final goods and services produced. It is important, therefore, to distinguish between intermediate goods and final goods to avoid double counting. The expenditures approach says GDP = consumption + investment + government expenditure + exports - imports. The expenditure approach attempts to calculate GDP by evaluating the sum of all final goods and services purchased in an economy. Y = C + I + G + (X − M) is the standard equational (expenditure) representation of GDP. The Cost - Income approach sums the income payments and direct costs items that accompany the production of goods and services along the way. The sum total of these transactions becomes the GDP. These payments & costs (Wages, Rents, Business Profits, Interest Income, for example) also include indirect business taxes, depreciation, & net income of foreigners.

List and discuss (in your own words) 2 of the 4 government subsidies highlighted in the modules. Your discussion should include: 1) the definition of a subsidy, 2) how the subsidy impacts the market both good & bad, and 3) offers a compelling economic argument either for or against the subsidy. Feel free to include a graph to help support your discussion.

Government subsidies are payments to consumers/suppliers when a price for a good or service is either too high or too low. On a positive note, subsidies could help a struggling supplier keep up with production while also continuing to accumulate funds. On the other hand, however, subsidies are funded by raising taxes, which is not a favorable outcome. Two kinds of subsidies are agricultural and energy, which assist firms in maintaining a steady income, maintaining a production schedule, and a few other things. Energy subsidies are mainly geared towards helping consumers have affordable energy prices, and also lessening the cost of production for suppliers.

What is the Labor Force Participation Rate and why is it so important to understanding the state of the economy?

Labor force participation rate is the measurement of the working population in the age group of 16-64 in the economy currently employed or seeking employment. Students, military, housewives and persons above the age of 64 are not considered as available to be in the labor force. LFPR is the sum of all employed workers divided by the working age population as defined above. Currently, the labor force participation (those who are in the work force) is 62.9%.

Explain, in your own words, why there is little incentive for managers of government agencies to operate in an economically efficient manner?

No profit incentive; customers don't have to be happy with the product or the service as the government has a monopoly on both; Government tends to be motivated by special interests, shortsightedness (election cycles), and rent seeking.

List & discuss the key problems with measuring GDP.

Page 145-147 1. Does not count non market production; 2. Misses Underground Economy; 3. Excludes Leisure and human costs; 4. Poor adjustments for Quality changes + new goods; 5. Ignores Harmful Side effects; and 6. Understates well-being.

What are the pro's and con's of "automatic stabilizers" in the economy?

Pro's - no legislation need to pass; little to no time lag for implementation; can minimize the contractionary impacts of the economy. Con's - can create government deficits, wealth transfer; may have little impact on economy contraction; can create negative incentives.

List and describe the characteristics of a public good. Does it makes sense for government to provide these? Why or why not?

Public goods are typically described as nonexcludable and nonrivalrous. These two terms mean that supply is not an issue, as a large number of people can use the product or service without the worry that it will go away; and that the use of public goods are not held back from any individual for any reason. The public goods argument is that private firms cannot turn enough of a profit to find public goods worth servicing, resulting in a shortage and leading us to believe that public goods are overlooked in a free market. I agree with this statement, the free market does not take into account the whole population and service "nonexcludable" and "nonrivalrous" goods. That is one of the things the government is needed for because the private sector is concerned with profits, not the public having the same chance to receive an endless supply of a good or service.

Define and discuss the Federal Debt and the Budget deficit.

The federal debt and budget deficit are the debt owed by the federal government to the public, mostly purchasers of bonds, and the budget deficit is simply when government spending is larger than revenue. The current problem in the United States is that the federal debt is increasing due to rapid spending starting in the late 90s. Although the government is collected record numbers, it is undone by increased spending, including spending north of $400 billion on interest payments in 2018-19.

In one of our module videos, we learned that government can't give money away efficiently. Explain why that is the case using the example provided in the video.

The issue is "rent seeking." The case provided in the video was a prize (the rent) given by a University for a paper about the kind of flower you wanted to be. As a result, numerous students worked many hours (rent seeking) to earn the rent. The cost of seeking the rent was not as efficient as if they had worked for something more productive resulting in a net loss to the economy.

Compare and contrast the two primary economic ideologies in economics, Keynesian & Classical.

The major differences between Keynesian and Classical ideologies are their stances on government intervention and aggregate supply and how it affects prices when AD falls. Classical believes that government intervention is not needed, and the market often resets itself. On the other hand, Keynesian is not so high on free markets, and believes they cannot regulate themselves, so government intervention is crucial to keeping their integrity. Classical also suggest that when AD falls, so do prices, and wages allowing the economy to fix itself. Keynesian views are that when AD falls prices are sticky, which means wages stay and there is a decrease in output.

List, label, graph, define, and discuss (in your own words) ALL the parts of the most important model in all of economics

The most important model in all of economics would be that of supply and demand. The parts that make up what this graph is includes: quantity on the x-axis, price on the y-axis, downward sloping demand curve, upward sloping supply curve, and the market equilibrium. Quantity is simply the amount of output produced in a sector or economy, and may shift to the left or the right depending on the implications of production methods. Price is the price level at each different point of demand, and could shift if, for example, a recession occurs and buyers have less spendable income. It's important to note that when price is high, demand decreases since less buyers are willing to spend more, when price is low the opposite occurs and demand is high. As for supply, when prices are low, suppliers are less incentivized to make more of that product since it's not that profitable. Conversely, when prices are high suppliers try to make as much of the product as possible to ensure profits are steadily rising. Lastly, market equilibrium is the point at which the supply and demand curves intersect. In economic terms, this means that the quantity supplied is the same as the quantity demanded, thus creating an equilibrium price and an equilibrium quantity.

Discuss the differences and the similarities highlighted between government and market allocation.

There are several major factors that can undermine the invisible hand and reduce the efficiency of markets and highlight the differences between markets and governments: - lack of competition, - externalities, - public goods, - free riders, - poorly informed buyers or sellers. We will now consider each of these factors and explain why they may justify government intervention, - Public sector organization can break the linkage between payment and consumption of a good; and - When political choices are made legislatively, voters face a "bundle purchase" problem. They must choose among candidates who represent a bundle of positions on issues.