Chapter 5: Government's Role in Government Failure
In what way, if any, does the invisible hand affect government resource allocation?
It does not help resource allocation, as there are no competitive forces within government that automatically direct resources to their best uses
The U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank are all in charge of what for the countries they represent?
Monetary policy
The government of Southland wants to improve resource allocation in the country. Which of the following actions by the Southland government is most likely to accomplish this?
Taxing polluters and subsidizing firms that are creating significant positive externalities
From an economist's perspective, when is government too big?
When the marginal costs from additional government spending exceed marginal benefits
"Earmarks" refer to
authorized expenditures benefiting a narrow, specifically designated group that are included in more comprehensive spending legislation
As it relates to the political process, the principal-agent problem results from the
inconsistency between voters' interest in programs and politicians' interest in reelection
Government officials tend to make
inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs
In a market economy, the government's power to coerce can
reduce private-sector risk and increase economic efficiency
In a sporting goods store, you can buy the equipment you want and forgo the rest. But in an election you "buy" the entire range of the candidate's positions, including some you may not agree with. This difference
reflects limited and bundled choices in the public sector
Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of
rent-seeking behavior
As it relates to corporations, the principal-agent problem is that
the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals)
Government passes a law requiring all domestic clothing factories to pay workers at least $20 per hour. As a result, domestic clothing companies move their operations overseas, leaving domestic workers unemployed. This situation illustrates the problem of
unintended consequences