Econ 202 Module 8 Problem Set

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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.


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