Ch 15 Q&A w/ terms

22) Table 16.1 shows the preferred budget in millions for a new sports facility and the number of thousands of voters in a community who prefer that budget. Tom proposed a budget of $7 million while Mary proposed a budget of $2 million. Which of the two candidates will be elected if everyone votes? A) Tom B) Mary C) It will be a tie. D) The outcome of the election cannot be predicted.

A

A good that is consumed by a single person or household is called a(n): A) private good. B) external good. C) public good. D) spillover good.

A

A private good is a good that: A) is consumed by a single person or household. B) cannot be used by private citizens. C) can not result in external benefits or costs to those who don't consume. D) is available for everyone to consume, regardless of who pays.

A

When people try to benefit from a public good without paying for it we call it the: A) free-rider problem. B) duopolists' dilemma. C) public goods problem. D) taxation problem.

A

A spillover benefit is the benefit experienced by people who: A) do not decide how much of the good to produce or consume. B) did not know why they are experiencing the benefit. C) decide how much of the good to produce or consume. D) consume the good.

A Education is a great example of a good that has spillover benefits to society, beyond just the one individual who receives the education.

A market in which there are neither spillover benefits nor spillover costs is: A) efficient. B) inefficient. C) efficient but not equitable. D) impossible.

A Thus, with all benefits and costs appropriately included in the demand and cost functions, i.e., internalized, then the market is viewed as efficient from this perspective

Consider the benefits of having a college degree. Some benefits accrue directly to the holder of the degree, but there are at least three types of external benefits from education

A. Workplace externalities: A college graduate may understand instructions more easily and thus work better as a team member. Civic externalities: A college graduate may vote more intelligently and thus benefit fellow citizens. Crime externalities: Educated people earn higher incomes and thus commit less crime. High school dropouts have lower incomes and are more likely to commit crimes.

Preferred Budget 1 2 3 4 5 6 7 Number of Voters 2 3 6 10 15 4 3 Table 16.1 21) Table 16.1 shows the preferred budget in millions for a new sports facility and the number of thousands of voters in a community who prefer that budget. Tom proposed a budget of $6 million while Mary proposed a budget of $3 million. This suggests that Tom will get ________ thousand votes while Mary gets ________ thousand votes. A) 32; 11 B) 22; 21 C) 15; 28 D) 12; 31

B

An example of a good that is rival in consumption is: A) a radio program. B) a copy of an economic textbook. C) an economics web page. D) a poster of famous economists.

B The good can only be consumed by one person.

An example of a good that is non-rival in consumption is: A) a music CD. B) a radio broadcast of a song. C) a ticket to a concert. D) a guitar.

B The good is available for everyone to consume.

Offering contributors private goods such as coffee mugs, books, or magazine subscriptions will ________ the free-rider problem and lead to a ________ level of contribution to the public good. A) reduce; smaller B) reduce; larger C) increase; smaller D) increase; larger

B This is the approach of public television networks (#16 too) that do not have commericals. Usually is not terribly successful.

What is the best explanation for the fact that the only two political candidates in an election often have very similar stands on the issues during an election? A) They are logrolling. B) They are behaving according to the median voter rule. C) Democrats and Republicans actually agree on most issues. D) They need to please special interest groups in order to be elected.

B Thus, for pragmatic reasons to get elected, many politicians seem to move closer to one another on key issues as the election nears. And those that dogmatically stick to views that are not near the "median" view are unlikely to win elections.

A good that is available for everyone to consume, regardless of who pays and who doesn't, is called a: A) private good. B) external good. C) public good. D) spillover good.

C

The diversion of asteroids is a public good because: A) no individual has enough money to develop the technology to divert asteroids on his or her own. B) individuals would not contribute money to divert asteroids. C) everyone on earth would benefit from asteroid diversion whether they contribute or not. D) none of the above; asteroid diversion is not a public good

C

The free-rider problem occurs for: A) private goods and public goods. B) private goods but not public goods. C) public goods but not private goods. D) neither public nor private goods.

C

An example of a good that is excludable is: A) a park. B) a river. C) a boat. D) clean air.

C It is possible to exclude a person who does not pay for the good from consuming the good.

A public good is a good that: A) is consumed by a single person or household. B) cannot be used by private citizens. C) is available for everyone to consume, regardless of who pays. D) is provided by the government.

C Standard analysis to date assumed that all goods were private goods, i.e., could only be consumed by one person. Not so with public goods, e.g., national defense.

Public choice economics studies: A) what individuals choose for themselves. B) how individuals are affected by advertising. C) how governments operate. D) the voter theory.

C This field combines elements of economic analysis with that from political science.

An example of a good that is excludable is: A) broadcast television. B) an outdoor sculpture visible from the street. C) an aerial fireworks display. D) a television set.

D

Arranging matching charitable contributions will ________ the free-rider problem and lead to a ________ level of contribution to the public good. A) increase; smaller B) increase; larger C) reduce; smaller D) reduce; larger

D

The median voter rule says that: A) people "vote with their feet." B) the median voter will not bother to vote in the election, it is extremists who vote. C) the median voter never gets what he or she wants in an election. D) government decisions will reflect the preferences of the median voter.

D

23) The self-interest model of government: A) suggests that government officials are selfish. B) explains why there are limits on government taxation and spending. C) shows how the theory of rent-seeking applies to governments. D) All of the above are correct.

D Nobel laureate James Buchanan has proposed such a view of the government. In this view, the benefits of government apply to just a few, who are able to manipulate the government, and the outcome is highly inefficient for the public as a whole.

The free-rider problem implies that: A) each person will pay the full cost of the public good. B) nobody wants the public good. C) everybody will pay a portion of the cost of the public good. D) each person will try to benefit from the public good without paying for it.

D The free-rider problem is the primary reason we have government taxes, so that there will be the provision of public goods like highways and national defense. Still many free-rider problems. .

A government can promote efficiency by intervening in a market in which there are: A) no spillovers. B) spillover costs. C) spillover benefits. D) either spillover costs or spillover benefits.

D This is just the reverse case of question 1, i.e., where all benefits and/or costs are not internalized in the appropriate functions, so there is need for government assistance (which may not be easy).

External Benefits and the Marginal Principle

Example: the relationship between external benefits and the choice a parent makes regarding education Since there is an external benefit to education, a parent chooses an amount of education for his/her child that is below the socially optimal level. For this reason, local governments provide free education through high school and states subsidize higher education.

Other Private Goods That Generate External Benefits

Other government subsidy programs include on-the-job training and university research.

Public choice economics provides four theories of government behavior:

That the government takes actions to promote efficiency. That the voters tell the government what to do, and thus, government actions reflect the will of the voters. That government officials pursue their own self-interest. That special interest groups manipulate the government.

External benefit is

a benefit from a good experienced by someone other than the person who buys the good.

A private good

a good that is consumed by a single individual or household; it is a good that is both rival in consumption and excludable.

public good is a good that is

both nonrival in consumption and nonexcludable.

Voluntary contributions

cannot be relied upon to ensure optimal provision of public goods because of the free-rider problem.

The government may make inefficient decisions

due to inadequate information such as costs and benefits, inflexible tax systems, and special interest lobbying.

public-choice economics

field of economics that uses models of rational choice to explore decision making in the public sector.

Another model of government is based on the claim that small groups of people may manipulate the government for their own gains.

for example, the total benefit of a dam may be less than its total cost, but if a few farmers benefit a great deal from the dam, they may have a large incentive to spend time and resources lobbying the government. If the costs are spread over a million taxpayers, each of whom pays only $1, it is not worth it to them individually to spend much time making their preferences known to politicians.

Voluntary contributions for public goods are likely to be insufficient due to

free riders, people who get the benefit from a good but do not pay for it. Each person will try to get the benefits of a public good without paying for it. The flip side of the free-rider problem is the chump problem—no one wants to be the person who gives free rides to everyone else.

Public goods are

goods that are available for everybody to consume, regardless of who pays and who doesn't

KEY PRINCIPLE: MARGINAL PRINCIPLE

increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

Public goods are

non rival and non excludable.

The benefits of producing or consuming public goods are

not confined to the producer and/or consumer of the good

For some goods, the benefits of producing or consuming the good are

not confined to the producer and/or consumer of the good; such markets will be inefficient.

Successful organizations, such as public TV and radio,

offer incentives to help overcome the free-rider problem (although the typical public radio station gets contributions from only a quarter of its listeners).

The markets for these goods will be inefficient because

quantities produced will be too low. The government can internalize the positive externality by paying a subsidy equal to the external benefit.

The median-voter rule

states that the choices made by government will match the preferences of the median voter.

The free-rider problem occurs when

those who do not pay for a good or service cannot be prevented from using the good or service. Because public goods are nonexcludable, people have an incentive to understate their true willingness to pay for these goods

The self-interest theory of government asserts that

voters may not have much information about the costs and benefits of public services; therefore, they may not be able to evaluate the actions of politicians and vote accordingly. Thus, politicians will pursue goals that gain them prestige or other benefits, even if these are not in the best interests of the public.