Deck 5: Public Goods, Public Choice, and Government Failure

Question 1

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we have a demand-side market failure.

Answer 1

True

Question 2

Regulatory capture occurs when government exerts excessive control over an industry.

Answer 2

False

Question 3

The government receives all of the benefits associated with the production of a public good.

Answer 3

False

Question 4

The optimal quantity of a public good is where the total benefits from it are equal to the total costs of producing it.

Question 5

The free-rider problem makes a good highly profitable for a private firm to provide.

Question 6

The Securities and Exchange Commission's supervision of Wall Street financial firms is a possible example of regulatory capture.

Question 7

The pursuit through government of special benefits at society's expense is called "rent seeking."

Question 8

Logrolling can either increase or diminish economic efficiency.

Question 9

Excludability means that when someone is consuming a good, then others are excluded from using the good anymore.

Question 10

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Question 11

Majority voting assures that government will provide a public good if it yields total benefits in excess of total costs.

Question 12

The problem of limited and bundled choices explains why many voters cannot fully express their political preferences.

Question 13

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Question 14

Economists widely support deregulation of industries that tend toward monopoly or generate substantial negative externalities.

Question 15

The principal-agent problem is a problem for the private sector but does not apply to political decision making.

Question 16

The free-rider problem refers to the local government's problem of finding funds to provide free bus rides in the city.

Question 17

Deregulation is seen as a solution to regulatory capture because it eliminates the regulatory agency that can or has been captured.

Question 18

Rivalry means that when one person buys and consumes a product, it is not available for purchase and consumption by another person.

Question 19

Even if a majority of the population wants a law and the law is passed, the outcome may still be economically inefficient.

Question 20

Nonrivalry in the use or consumption of a good means that only one person is consuming the good without any rivals.

Question 21

Critics of government contend that the market system creates incentives and pressures for internal efficiency that are absent in the public sector.

Question 22

Political logrolling always produces economically inefficient outcomes.

Question 23

When the special-interest effect is the major reason for the passage of a government policy or project, then economic efficiency will always improve.

Question 24

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the benefits would end up getting approved by the voters.

Question 25

In thinking about the "principal-agent problem" in a democratic government, we assign the role of "principal" to the government.

Question 26

It is generally believed that, because of the election process, the incentives and pressures for internal efficiency are stronger in the public sector than in the private sector.

Question 27

The appeal to government for special benefits at taxpayers' or someone else's expense is called the paradox of voting.

Question 28

Special-interest groups result from people with strong preferences on a particular issue banding together to let policymakers know their preferences and could thereby lead to efficient outcomes.

Question 29

Political logrolling, or vote trading, can turn a potentially inefficient voting outcome into an efficient one.

Question 30

If choice A wins over choice B in a majority vote, while choice B wins over choice C in a majority vote, then we can conclude that choice A would win over choice C.

Question 31

Deregulation of an industry will always lead to an improvement in economic efficiency.

Question 32

Nobody gains from pork-barrel politics other than the politicians.

Question 33

The "principal-agent problem" often arises in public choice when politicians pursue the best interests of their constituents.

Question 34

Regulatory capture in government happens because the people who are most qualified to supervise and regulate an industry oftentimes are or have been the leaders of the industry.

Question 35

The special-interest effect in government is the reason why firms in some industries are willing to pay huge amounts of money to lobbyists.

Question 36

Because of the so-called "bundled choice" problem, voters often vote for candidates that they are not entirely happy with.

Question 37

The "pork" in pork-barrel politics refers to government projects that politicians try to secure in favor of the common good for the whole nation.

Question 38

If a public good provides social benefits that are greater than its costs, then the majority of voters would always vote in favor of producing the good.

Question 39

Even if individual voters have clear preferences, and they stay consistent in their preferences, we could still end up with the paradox of voting.

Question 40

Majority voting produces efficient outcomes because it takes into account the strength of the preferences of individual voters.

Question 41

Suppose that Katie and Kelly each expect to receive $500 worth of marginal benefits from a proposed new recreation center, whereas Kerry expects to receive only $100 worth. If the proposed tax levied on each for the center would be $600, a majority vote will

A)pass this project and resources will be overallocated to it.
B)defeat this project and resources will be underallocated to it.
C)pass this project and resources will be efficiently allocated to it.
D)defeat this project and no resources will be allocated to it.

Question 42

The following data are for a series of increasingly extensive flood-control projects. For Plan D marginal costs and marginal benefits are

A)$16,000 and $28,000, respectively.
B)$24,000 and $18,000, respectively.
C)$28,000 and $12,000, respectively.
D)$72,000 and $64,000, respectively.

Question 43

One prediction of the median-voter model is that during elections, candidates will tend to become "centrists."

Question 44

Demand-side market failures occur when

A)demand curves don't reflect consumers' full willingness to pay for a good or service.
B)demand curves don't reflect the full cost of producing a good or service.
C)government imposes a tax on a good or service.
D)a good or service is not produced because no one wants it.

Question 45

One implication of the median-voter model, as applied to a vote regarding how much government involvement to have in the economy, is that most voters would find the resulting government involvement either too large or too small.

Question 46

In the median-voter model, half the voters have stronger or more positive preferences than the median voter, while half of the voters have weaker or more negative preferences.

Question 47

Location subsidies have been found to be largely a waste of taxpayer money.

Question 48

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $12, respectively, for the fifth unit of a public good. Also, assume that the marginal cost of the fifth unit is $23. We can conclude that

A)the fifth unit should be produced.
B)the fifth unit should not be produced.
C)zero units should be produced.
D)3 units should be produced.

Question 49

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $800. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be

A)accepted, four in favor, one against.
B)accepted, 3 in favor, 2 against.
C)accepted, all 5 in favor.
D)defeated, 1 in favor, 4 against.

Question 50

People enjoy outdoor holiday lighting displays and would be willing to pay to see them, but can't be made to pay. Because most people who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a

A)negative externality.
B)supply-side market failure.
C)demand-side market failure.
D)government failure.

Question 51

One consequence of the paradox of voting is that whoever sets the agenda of a vote could practically predetermine the results of the vote.

Question 52

Answer the question based on the following information for four highway programs of increasing scope. All figures are in millions of dollars. Based on the data, we can say that the marginal benefits of Program C are

A)$9.
B)$7.
C)$2.
D)$5.

Question 53

New Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected total annual costs and benefits of these alternatives. The net benefits of crime control for Level 3 are

A)$20,000.
B)$10,000.
C)$40,000.
D)$100,000.
E)$140,000.

Question 54

In the median-voter model, the median voter refers to the voter who makes her choice at the midpoint of the voting period.

Question 55

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $80, what is the minimum amount that Susie must be willing to pay for it to be efficient for government to produce the third unit?

A)The amount cannot be determined with the information provided.
B)$80
C)$15
D)$65
E)$95

Question 56

Mohair loan subsidies, provided to Angora goat farmers, are an example of regulatory capture.

Question 57

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. The collective willingness of this society to pay for the second unit of this public good is

A)$6.
B)$2.
C)$4.
D)$8.
E)$1.

Question 58

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. If the marginal cost of producing this good at the optimal quantity is $2, the optimal quantity must be

A)5 units.
B)3 units.
C)1 unit.
D)2 units.
E)4 units.

Question 59

If many people in a community get flu shots, the whole community benefits, including those who did not get flu shots. Therefore, not enough people may decide to get the shots. This is one illustration of

A)the market allocating resources efficiently.
B)monopoly power due to lack of competition.
C)supply-side market failure.
D)demand-side market failure.

Question 60

Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $20 for the fifth unit of a public good; Kara, $15; and Susie, $5. Government should produce the fifth unit of the public good if the marginal cost is less than or equal to

A)$5.
B)$40.
C)$35.
D)$20.
E)$15.

Question 61

Which of the following is an example of a public good?

A)a weather warning system
B)a television
C)a sofa
D)a bottle of soda

Question 62

Toll-free roads sometimes get congested, such as during rush-hour traffic. During those times, we would say that these roads are

A)excludable and rival.
B)excludable and nonrival.
C)nonexcludable and nonrival.
D)nonexcludable and rival.

Question 63

The market system does not produce public goods because

A)there is no need or demand for such goods.
B)private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
C)public enterprises can produce such goods at lower cost than can private enterprises.
D)their production seriously distorts the distribution of income.

Question 64

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. Suppose government has already produced 4 units of this public good. The amount individual B is willing voluntarily to pay for the fourth unit is

A)$14.
B)$5.
C)$2.
D)$0.

Question 65

Nonrivalry and nonexcludability are the main characteristics of

A)consumption goods.
B)capital goods.
C)private goods.
D)public goods.

Question 66

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. The collective willingness of this society to pay for the second unit of this public good is

A)$2.
B)$4.
C)$6.
D)$8.

Question 67

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

A)the third unit should not be produced.
B)the third unit should be produced.
C)zero units should be produced.
D)4 units should be produced.

Question 68

If one person's consumption of a good does not preclude another's consumption, the good is said to be

A)nonrival in consumption.
B)rival in consumption.
C)nonexcludable.
D)excludable.

Question 69

When producers do not produce the efficient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

A)demand-side market failure.
B)supply-side market failure.
C)competitive market.
D)monopolistic market.

Question 70

Because of the free-rider problem,

A)the market demand for a public good is overstated.
B)the market demand for a public good is nonexistent or understated.
C)government has increasingly yielded to the private sector in producing public goods.
D)public goods often create serious negative externalities.

Question 71

Unlike a private good, a public good

A)has no opportunity costs.
B)has benefits available to all, including nonpayers.
C)produces no positive or negative externalities.
D)is characterized by rivalry and excludability.

Question 72

Nonexcludability describes a condition where

A)one person's consumption of a good does not prevent consumption of the good by others.
B)there is no effective way to keep people from using a good once it comes into being.
C)sellers can withhold the benefits of a good from those unwilling to pay for it.
D)there is no potential for free-riding behavior.

Question 73

A demand curve for a public good is determined by

A)summing vertically the individual demand curves for the public good.
B)summing horizontally the individual demand curves for the public good.
C)combining the amounts of the public good that the individual members of society demand at each price.
D)multiplying the per-unit cost of the public good by the quantity made available.

Question 74

Which of the following statements is not true?

A)Some public goods are paid for by private philanthropy.
B)Private provision of public goods is usually unprofitable.
C)The free-rider problem results from the characteristics of nonrivalry and nonexcludability.
D)Public goods are only provided by government.

Question 75

Public goods are those for which there

A)is no free-rider problem.
B)are not any externalities.
C)is nonrivalry and nonexcludability.
D)is rivalry and excludability.

Question 76

At the optimal quantity of a public good,

A)marginal benefit exceeds marginal cost by the greatest amount.
B)total benefit equals total cost.
C)marginal benefit equals marginal cost.
D)marginal benefit is zero.

Question 77

The two main characteristics of a public good are

A)production at constant marginal cost and rising demand.
B)nonexcludability and production at rising marginal cost.
C)nonrivalry and nonexcludability.
D)nonrivalry and large negative externalities.

Question 78

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. If the marginal cost of producing this good at the optimal quantity is $4, the optimal quantity must be

A)1 unit.
B)2 units.
C)3 units.
D)4 units.

Question 79

Answer the question based on the following information for a public good. Pₐ and Pᵦ are the prices that individuals A and B are willing to pay for the last unit of a public good, rather than do without it. These people are the only two members of society. If this good were a private good instead of a public one, the total quantity demanded at a $3 market price would be

A)2 units.
B)3 units.
C)6 units.
D)4 units.

Question 80

A public good

A)can be profitably produced by private firms.
B)is characterized by rivalry and excludability.
C)produces no positive or negative externalities.
D)is available to all and cannot be denied to anyone.