Econ Final Review
Refer to figure 5-4. The efficient price and quantity are
$1.80 and 35 units, respectively
Refer to figure 4-20. The amount of the tax per unit is
$3 (measure difference between demand curves)
What percentage of Americans age 18 and over paid personal income taxes in 2009?
51 percent
Refer to Figure 4-25. After the tax is levied, consumer surplus is represented by area
A
Senator Blacklung represents a state that grows a significant amount of tobacco. Not only do many of his constituents work for businesses in this industry, but the tobacco firms also make generous donations to his reelection campaign. According to public choice theory, which of the following bills would Senator Blacklung be most likely to support?
A bill that would provide substantial subsidies for tobacco growers
Which of the following are ways in which the private market provides consumers with valuable information to help them make better decisions?
All of the above
Which of the following represents which private production tends to be more efficient than government production?
All of the above
Which of the following explains why managers of government agencies have little incentive to achieve operational efficiency?
All of the above explain why government agencies have little incentive to be efficient
Most income transfer programs in the United States
Allocate income to concentrated interest groups, such as the elderly, large farmers, and business interests
Which of the following is a predictable side effect of increased government activity (taxes and subsidies) designed to redistribute income among citizens?
An increase in rent-seeking activity
From the viewpoint of economic efficiency, when competitive forces in an industry are weak, market allocation will often lead to
An output of the product that is less than the amount consistent with ideal economic efficiency
Public choice analysis
Assumes individuals in the public sector act in their own self-interests
Under democratic representative government, spending on a government program will likely be larger than the amount consistent with economic efficiency when
Benefits of the program are highly concentrated, while the costs are widely dispersed among voters
In which case is the political process most likely to result in the acceptance of efficient projects and rejection of inefficient projects?
Both the benefits and costs are widespread among voters
If government taxes a firm which polluted this will
Decrease supply of the good produced
The problem created when it is difficult to exclude nonpaying customers is called the
Free-rider problem
Public choice analysis suggests that the primary motivating factor for politicians will be finding the policies that are most likely to
Get them reelected
Which of the following is true regarding government expenditures in the United States?
Government expenditures as a share of GDP grew rapidly between 1930 and 1980
Giving local governments more power is less dangerous than giving the same power to the national government because
Higher exit options exist at the local level-- it is easier for people to move away from a bad local government
A good is considered a public good if it
Is both nonrival-in-consumption and nonexcludable
A sound legal system that protects individuals and their property
Is vital to the smooth operation of markets
The rational-ignorance effect refers to the
Lack of incentive voters have to become well-informed about candidates and issues because their vote is unlikely to affect the outcome of an election
When external benefits are present in a market,
Less of the good will be produced than the amount consistent with economic efficiency
Which of the following refers to when legislators trade votes on legislation?
Logrolling
If the consumption of a good by one individual does not change the amount of the good available to others, the good is considered to be
Nonrival-in-consumption
Relative to a competitive situation, if a market lacks competition, economic theory suggests that
Output will be lower and price higher
In a market that lacks sufficient competition,
Output will generally be less than the output that is ideal from the standpoint of economic efficiency
Refer to Figure 4-25. The equilibrium price before tax is imposed is
P1
Refer to Figure 4-24. The per unit burden of the tax on buyers is
P3-P2
Which of the following is a distinguishing characteristic of a user charge?
Persons pay roughly in proportion to the extent that they use the good or service
The shortsidedness effect suggests that
Politicians have a strong incentive to support projects that yield immediate and easy recognizable benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future
Students in a class are assigned to groups to work on a project. A grade will be given for each project, and everyone in the group will receive that grade. For the members of a particular group, the grade is a
Public good
The "free rider" problem occurs in connection with
Public goods
Which of the following is true?
Real federal spending per person was approximately 80 times greater in 2010 than in 1916
Figure 5-3 illustrates the market for a product that generates an external benefit. D1 is the private market demand curve, while D2 is the demand curve including the external benefit. Which of the following is true?
Relative to economic efficiency, output of the good will be too large and the price too low
Which of the following countries had the highest level of government expenditures as a share of GDP in 2007?
Sweden
Which of the following is an example of a public good?
Television broadcast signal
When market failure is present,
The conditions implied by idealized efficient allocation of resources will be absent, but it does not follow that political action will improve the situation
In the case of a private good, which of the following forms of economic organization will result in the strongest incentive for consumers and producers to economize?
The good is produced privately and consumers purchase it with their own money
If in market equilibrium the true marginal cost of producing a good exceeds the marginal cost incurred by the firm,
The good produces a negative externality
Which of the following is true?
The incentives to engage in rent-seeking activities increase with the ease with which the political process can provide personal gain at the expense of others
Externalities are fundamentally the result of
The lack of well-defined or enforced property rights
Sellers will tend to be most concerned with customer satisfaction when
They depend on repeat customers for most of their business
Consider two goods-- one that generates external benefits and another that generates external costs. A competitive market economy would tend to produce
Too little of the good that generates external benefits and too much of the good that generates external costs
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. Programs that give subsidies to a small group of producers at general taxpayer expense would be considered
Type B projects, and he government would be likely to undertake many of these projects even when they were counterproductive (inefficient)
A local government operates a city recreation center with a pool and tennis courts. The center is financed through $50 annual membership fees. This type of financing is known as
User charge
Public choice theory suggests that representative government yields outcomes more consistent with economic efficiency when a close relationship occurs between the benefits received and the costs borne by each voter. Which of the following methods of financing a government program will most likely result in a close relationship between voter benefits and costs?
User charges
Public choice theory indicates competitive forces provide a politician with a strong incentive to offer voters a bundle of political goods that she believes
Will increase her chances of winning elections
The administrative, enforcement, and compliance costs of collecting taxes in the United States sum to
between 12 and 15 percent of the revenues collected
(I) Sales taxes, income taxes, property taxes, and grants from higher levels of government are the major sources of state and local revenue in the United States (II) Including both the excess burden and administration, enforcement, and compliance costs of taxes in the United States, $1 in taxes to the government imposes a cost of somewhere between $1.20 and $1.30 on the economy
both I and II are true
An analysis of market failure and government failure indicates
both the market and the government may fail to meet conditions of economic efficiency; in each individual case, he choice of market or public-sector action requires careful evaluation
In a representative democracy, government action results from the
complex interaction of all of the above
According to the economic way of thinking, personal benefits and costs influence the actions of
consumers, producers, voters, and politicians in both the private and public sectors
Government decisions tend to be biased toward actions that have
current benefits that are easily observable and future costs that are difficult to identify
Public choice theory suggests that politicians will be most likely to favor redistribution of income from
disorganized individuals to well-organized special interest groups
Senator Spendall is able to use his position on an important committee to set aside government funding specifically for a new bridge in his hometown. This is an example of
earmarking
Economics indicates that government funding of special interest projects and favoritism of some business firms relative to others will lead to
economic inefficiency because the funding will be driven by political rather than economic considerations
As government becomes larger and larger as a share of the economy, economic growth is likely to decline because
governments are involved in many activities for which they are ill-suited
In 1980, the top 1 percent of earners paid 19.1 percent of federal personal income tax. By 2008, the share of this tax collected from the top 1 percent of earners
had risen to over 35 percent
The major categories of federal government spending are
health care, national defense, Social Security, and other income transfers
An effective minimum wage
increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others
Economic theory leads us to expect that the typical voter will be uninformed on many issues because
information is costly, and the individual voter casting a well-informed vote can expect negligible personal benefit
Despite many differences, the market and public sectors are similar in which one of the following respects?
it will be costly to use scarce goods, whether through the private or the public sector
One dollar of tax revenue ends up costing citizens in the economy
more than one dollar
Which of the following is a distinguishing characteristic of a user charge?
persons pay roughly in proportion to the extent that they use the good or service
Refer to figure 4-17. If the government imposes a price ceiling in this market at price of $5.00, the result would be a
shortage of ten units
As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to
spend more time rent seeking
Compared to 1980, the top marginal federal income tax rate today is
substantially lower and the rate structure is less progressive than in 1980
The private sector of tax revenues is equal to the
tax revenue plus the cost of tax compliance and the excess burden of taxation
The deadweight loss resulting from levying a tax on an economic activity is
the loss of potential gains from trade from activities forgone because of the tax
Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project. For which type would the government most likely undertake many projects that would be considered inefficient or counterproductive?
type B
Public choice analysis indicates that
unconstrained democratic governments often enact special-interest programs that waste resources and impair the standard of living
Public choice theory suggests that politicians will be most likely to favor redistribution of income from
unorganized taxpayers to well-organized interest groups
A local government operates a city recreation center with a pool and tennis court. The center is financed through $50 annual membership fees (required for members to use it
user charge
Economic theory indicates that the behavior of
voters, government employees, and public officials is best understood by applying the same basic principle we use to predict the behavior of people in the private sector-- that incentives matter
In which case is the political process most likely to result in the acceptance of productive programs and rejection of unproductive political activities
when both the benefits and costs are widespread among voters
The 18th century Scottish philosopher Alexander Tytler argued that democracy
would tend to collapse from excessive debt once a majority of voters discovered they could vote themselves benefits at the expense of others
