Deck 16: Public Goods and Public Choice

Question 1

A good that is nonrival but exclusive is called

A) a private good
B) a public good
C) a quasi-private good
D) an external good
E) a normal good

Answer 1

C

Question 2

In a democratic society,the preferences of _____ will often dominate decisions made by direct majority voting.

A) elected government representatives
B) special interest groups
C) rent seekers
D) senior citizens
E) the median voter

Answer 2

E

Question 3

The efficient level of public good provision is determined

A) where the market demand curve intersects the marginal cost curve
B) where the sum of individual valuations equals the sum of marginal costs
C) without regard to economic factors
D) where marginal revenue product equals marginal factor cost
E) at the minimum point of the average total cost curve

Answer 3

A

Question 4

Sally,Kelly,and Debbie are roommates deciding on how many cats they want in the apartment.Sally prefers three cats to two cats to one cat,Kelly prefers two to one to three,and Debbie prefers one to two to three.If they decide by majority vote (one versus two,two versus three,and so on),how many cats will they get?

A) none
B) one
C) two
D) three
E) the answer cannot be determined from the information given

Question 5

In a direct,majority-rule vote,

A) all voters get what they want
B) a majority of voters get exactly what they want
C) only the median voter is completely satisfied
D) a minority of voters are dissatisfied
E) only the median voter is dissatisfied

Question 6

During a visit in Central Park,Alan values his first hour of walking at $10 and the second one at $7,Cooper values his first hour of walking at $6 and the second one at $1,and Emma values her first hour of walking at $20 and the second one at $15.Assuming that Alan,Cooper,and Emma are the only visitors in Central Park,what is true regarding the market demand for walks in Central Park?

A) The market demand is horizontal
B) Can be determined by horizontally adding up the individual demands
C) There is not enough information to determine the market demand
D) Can be determined by vertically adding up the individual demand
E) There isn't a demand for walks in Central Park

Question 7

Because information and the time required to acquire and digest it are scarce,

A) consumers concentrate on private choices rather than on public choices
B) consumers concentrate on public choices rather than on private choices
C) it is irrational for consumers to remain ignorant of the costs and benefits of government proposals
D) consumers have greater incentive to gather and act upon information about public choices than to gather and act upon information about their private choices
E) an individual voter has more incentive to examine the performance records of candidates for public office

Question 8

A public good,such as a community's emergency warning sirens,typically

A) imposes benefits on only a few individuals but imposes costs on many people
B) imposes both benefits and costs on relatively few individuals
C) imposes benefits on many individuals but imposes the costs on relatively few people
D) imposes both benefits and costs on many individuals
E) only imposes costs on individuals when logrolling is prevalent in the government

Question 9

Public choice theory suggests that political candidates try to get elected by

A) appealing to conservatives
B) appealing to liberals
C) appealing to senior citizens
D) appealing to the median voter
E) raising taxes

Question 10

Under representative democracy,

A) the median voter's preferences are always satisfied
B) citizens no longer have any influence since they do not vote on each issue
C) representatives may reflect the preferences of the median voter
D) less vote trading will occur than under direct voting
E) vote trading is impossible

Question 11

Why might two presidential candidates appear to have very similar opinions during an election year even if they come from different parties?

A) They aim to please special-interest groups.
B) They are logrolling.
C) They try to appeal to the median voter.
D) Republicans and Democrats usually agree on most issues.
E) They don't wish to appear rationally ignorant.

Question 12

The market demand curve for a public good

A) is the horizontal sum of all individual demand curves
B) is the vertical sum of all individual demand curves.
C) is upward sloping
D) is horizontal
E) does not exist

Question 13

Generally,people are more satisfied with private market outcomes than with public voting outcomes because

A) each consumer in the private market can choose the quantity he or she desires
B) most people are near the median
C) the prices are lower
D) markets are involuntary
E) there are too many choices to make in the public sector

Question 14

A good that is both rival and exclusive is called

A) a private good
B) a public good
C) a quasi-private good
D) an external good
E) an open access good

Question 15

The Central Park in Manhattan is an example of:

A) A private good
B) A public good
C) A natural monopoly
D) An open-access-good
E) An external good

Question 16

A good that is neither rival nor exclusive is called

A) a private good
B) a public good
C) a quasi-private good
D) an external good
E) an open access good

Question 17

If a voter expects to have little effect on government choices,that voter's behavior will reflect

A) rational ignorance
B) a cyclical majority
C) rent seeking
D) vote trading
E) a zero-sum game

Question 18

Direct majority-rule voting is a form of coercion in the sense that

A) all citizens must vote
B) all registered voters must vote
C) the median voter's preferences determine the outcome for everyone
D) the majority gets exactly what they want,but the minority does not.
E) individuals with higher incomes get more votes

Question 19

The median-voter model attempts to explain

A) why law partners can seldom agree on the division of costs
B) why,in a democracy,the preferences of the typical voter often will dominate other choices
C) why democracies can evolve into dictatorships
D) elections in which candidates present widely different platforms
E) conditions under which majority rule is better than market exchange

Question 20

A good that is rival but nonexclusive is called

A) a private good
B) a public good
C) a quasi-private good
D) an external good
E) an open access good

Question 21

Special-interest legislation usually

A) has widespread benefits and costs
B) has concentrated benefits and costs
C) has concentrated benefits but widespread costs
D) concerns the provision of public goods
E) concerns the provision of private goods

Question 22

Legislation that benefits many individuals at the expense of a few is a natural outcome of representative democracy.

Question 23

The American Association of Retired Persons (AARP) provides checklists summarizing the voting and attendance records of legislators.Which of the following is true?

A) If the AARP's members were rational,it wouldn't have to do this.
B) This policy is useless if AARP members are rationally ignorant.
C) This policy is intended to reduce voters' rational ignorance by decreasing the cost of information.
D) If AARP members read this information,their rational ignorance would be eliminated.
E) If all voters in the nation read this information,their rational ignorance would be eliminated.

Question 24

Many eligible voters do not vote,and many who do vote don't read the biographies of candidates before they vote.These are examples of

A) the median-voter model
B) representative government
C) rational ignorance
D) stupidity
E) laziness

Question 25

Rationality implies that in order to get what they want,people will spend the most time and effort

A) making private market decisions
B) getting politically involved
C) investigating political candidates' platforms
D) debating social issues
E) writing to Congress

Question 26

Competing-interest legislation involves

A) concentrated costs and widespread benefits
B) both widespread costs and widespread benefits
C) both concentrated costs and concentrated benefits
D) widespread costs and concentrated benefits
E) concentrated costs and either widespread or concentrated benefits

Question 27

In order to dispose of nuclear waste created by power plants around the country,the government buys land in Glowing Gulch,Idaho.Citizens of that town organize to block construction of the nuclear waste facility.Which of the following statements is false?

A) The benefits of the nuclear waste facility are widespread.
B) The costs of the nuclear waste facility are concentrated.
C) The citizens of Glowing Gulch are a special-interest group.
D) Consumers of the power generated at the nuclear plants are not likely to organize to support construction of the nuclear waste facility.
E) The citizens of Glowing Gulch are equally concerned about all public issues.

Question 28

Susie spends more of October thinking about her Halloween costume than she spends thinking about a proposed law that will be on the November ballot.Which of the following is true?

A) This behavior is rational if she expects a greater benefit from the costume than from any possible effect her vote could have on the proposed law.
B) This behavior is rational if she is planning to spend the time from Halloween to Election Day thinking about the law.
C) This behavior is not rational because the law is more important than the costume.
D) In order for this behavior to be considered rational,it would have to be true that Susie is too ignorant to fully understand the law.
E) In order for this behavior to be considered rational,it would have to be true that Susie would not be affected by the law.

Question 29

Rational ignorance helps explain why

A) legislators often trade votes on key issues to produce positive-sum games between them
B) legislators usually disregard the desires of those constituencies that cannot influence their chances for reelection
C) voters spend considerable time and effort to gather information to protect themselves against legislators with hidden agendas
D) it is rational for legislators to ignore the wishes and desires of all of their constituents
E) voters may choose to remain ignorant of issues when there are large costs associated with becoming informed

Question 30

Special-interest legislation is legislation where there are both widespread costs and benefits.

Question 31

If a citizen decides he has had enough of big government and launches a personal campaign to expose big spenders in Congress,

A) he is likely to have his taxes reduced dramatically
B) his taxes are not likely to fall very much
C) he will be thrown in jail
D) he is likely to get elected by other voters
E) he will get the support of many special-interest groups

Question 32

Rational ignorance suggests that voters may not spend much time examining candidates before an election because

A) politics is boring
B) each voter has virtually no chance of deciding the election
C) public choices are not important to society
D) candidates are chosen by the electoral college
E) candidates are usually so different that it is easy to determine which is better

Question 33

One result of voters' rational ignorance is that

A) cyclical majorities are more common
B) vote trading is common
C) majority rules
D) special interests often dominate legislation
E) members of Congress go along with whatever their constituents want

Question 34

Rational ignorance occurs when

A) voters find the cost of understanding a specific issue is greater than the expected benefit
B) legislation generates large benefits for a few people but imposes costs on many people
C) the preferences of the median voter dominates public choices
D) individuals or firms attempt to obtain favorable treatment from government officials
E) people make public decisions based on emotion rather than a rational analysis

Question 35

The proposed takeover of Tony's Airlines by Plummet Airlines will result in increased profits for Plummet and increased air fares for consumers.This is an example of

A) widespread distribution of benefits and costs
B) concentrated distribution of costs and benefits
C) concentrated distribution of benefits and widespread distribution of costs
D) concentrated distribution of costs and widespread distribution of benefits
E) logrolling

Question 36

Special-interest groups,such as the pharmaceutical lobby,often get what they demand because

A) politicians are rationally ignorant
B) voters are rationally ignorant
C) they engage in logrolling
D) they represent the median voter
E) none of the above

Question 37

Special-interest legislation is characterized by

A) concentrated costs and concentrated benefits
B) concentrated benefits and widespread costs
C) widespread benefits and widespread costs
D) widespread benefits and concentrated costs
E) zero costs

Question 38

Competing-interest legislation is characterized by

A) concentrated costs and concentrated benefits
B) concentrated benefits and widespread costs
C) widespread benefits and widespread costs
D) widespread benefits and concentrated costs
E) zero costs

Question 39

A large U.S.steel firm wants to restrict imports of Japanese steel,but Ford Motor Company wants fewer restrictions on steel so that the price of steel will go down.This can best be described as

A) a zero-sum game
B) a competing-interest situation
C) a special-interest situation
D) a situation without widespread costs and benefits
E) an argument over distribution of a public good

Question 40

Populist legislation is legislation where there are both widespread costs and benefits.

Question 41

Special-interest groups have a strong incentive to make the economy more efficient.

Question 42

Legislators often have difficulty passing legislation with widespread benefits,but that imposes concentrated costs because those who bear the costs will _____ the legislation,while those who would reap the benefits will _____ the legislation.

A) protest;actively support
B) not protest;not actively support
C) not protest;actively support
D) protest;not actively support
E) protest;protest

Question 43

Rent-seeking behavior imposes no costs on society because it is elected officials who actually make public sector decisions.

Question 44

The purpose of a political action committee is

A) to help elect officials sympathetic to its members' special interests
B) to help elect officials who will enact fair legislation
C) to raise money for public interest groups
D) to exchange trade secrets
E) to allow special-interest groups to be elected

Question 45

When the government increases taxes to provide traditional public goods,such as national security,there tends to be

A) widespread benefits and costs
B) widespread costs and concentrated benefits
C) concentrated benefits and costs
D) widespread benefits and concentrated costs
E) widespread costs and either widespread or concentrated benefits

Question 46

Legislation that provided cotton producers a subsidy is an example of:

A) Special-interest legislation
B) Competing-interest legislation
C) Concentrated-costs legislation
D) Public-interest legislation
E) Widespread benefits and costs

Question 47

Rent seeking

A) is the attempt to find apartments in a rent-controlled city
B) only makes sense in a monopolistically competitive industry
C) is a zero-sum game because the public's loss is the rent seeker's gain
D) is the expenditure of resources to obtain favorable treatment from government
E) occurs because of cyclical majority

Question 48

Competing-interest legislation is legislation that

A) imposes benefits on only a few individuals but imposes costs on many people
B) imposes both benefits and costs on relatively few individuals
C) imposes benefits on many individuals but imposes the costs on relatively few people
D) imposes both benefits and costs on many individuals
E) imposes costs only on those individuals who are rationally ignorant

Question 49

A payment over and above that necessary to call forth a resource is called

A) profit
B) rent
C) taxes
D) salary
E) welfare

Question 50

Environmentalists,worried about sulfur dioxide in the air,pressure the government to require bus manufacturers to modify exhaust systems in buses.In this situation,

A) benefits of the proposed requirements are more widespread than costs
B) benefits and costs of the proposed requirements are equally widespread because producers of buses will pass cost increases on to bus companies who will increase fares
C) pressure for government regulation is unnecessary because those who use buses will stop riding buses if they don't have cleaner emissions
D) bus riders are more likely to lobby against the proposal than are bus producers
E) bus riders are more likely to lobby against the proposal than are bus workers

Question 51

If general tax revenues were used to subsidize production of toothpicks,the government's actions would have

A) widespread benefits and costs
B) widespread costs and concentrated benefits
C) concentrated benefits and costs
D) widespread benefits and concentrated costs
E) widespread benefits and either widespread or concentrated costs

Question 52

An example of competing-interest legislation is

A) a quota that limits imports of steel to the United States
B) a subsidy to cigarette producers
C) tax breaks for auto manufacturers
D) a new bridge in Arizona funded by general tax revenues
E) public education subsidies

Question 53

General Motors benefits from tariffs on imported automobiles.Companies that use many automobiles,such as rental agencies,want to get them cheaply.In this case,the issue of tariff legislation involves

A) a simple majority because it promises concentrated costs and benefits
B) competing interests because it promises concentrated costs and benefits
C) a simple majority because it promises concentrated benefits and widespread costs
D) competing interests because it promises concentrated benefits and widespread costs
E) competing interests because it promises concentrated costs and widespread benefits

Question 54

A lobbyist for the coal industry asks Congress to limit environmental constraints on coal-burning plants.This is an example of

A) the median-voter model
B) rent seeking
C) perfect competition
D) monopoly
E) public-interest legislation

Question 55

To the extent that special-interest groups engage in rent seeking,they

A) are guilty of tax evasion
B) tend to make the economy more efficient
C) support legislation transferring wealth to themselves only if the measure increases the economy's overall efficiency
D) shift resources from endeavors that create income to activities that simply transfer income
E) tend to increase the economy's total output of goods and services while redistributing income

Question 56

With special-interest legislation,

A) benefits are concentrated but costs are widespread
B) both benefits and costs are concentrated
C) benefits are widespread but costs are concentrated
D) both benefits and costs are widespread
E) there is no predictable relationship between costs and benefits

Question 57

Legislation that provides a price support for dairy farmers is an example of

A) public-interest legislation
B) competing-interest legislation
C) a positive-sum game
D) special-interest legislation
E) concentrated-costs legislation

Question 58

Special-interest legislation that imposes costs broadly over many taxpayers can be enacted because

A) taxpayers benefit from this type of legislation
B) taxpayers remain rationally ignorant of the legislation
C) only the wealthy pay these taxes
D) these taxes are actually borne by a minority of taxpayers
E) the Constitution requires special-interest legislation

Question 59

Attempts by special-interest groups to gain favorable treatment from government are called

A) utility maximizing
B) profit seeking
C) rent seeking
D) profit maximizing
E) rent minimizing

Question 60

Rent seekers are those who seek to

A) use the government to protect their existing property interests
B) use the government to change the rules of the market game in their favor
C) convert public land into private land
D) convert public resources into private resources
E) maximize their own private gains from trade

Question 61

Which of the following would be considered tax evasion?

A) deducting charitable contributions when figuring income taxes
B) claiming your young children as tax exemptions
C) claiming your dog as a dependent on your tax form
D) buying a house in order to deduct interest payments
E) overestimating your income subject to taxes

Question 62

The hiring of a brilliant tax lawyer by a firm that wants to find tax loopholes

A) encourages economic efficiency by moving resources away from the government into the private sector
B) encourages economic efficiency only if the firm's profit increases
C) is an example of economic inefficiency caused by devoting resources to wealth redistribution rather than to production
D) involves the firm in a zero-sum game against other firms
E) involves the firm in a zero-sum game against the government

Question 63

Public goods legislation involves

A) widespread benefits and concentrated costs
B) widespread benefits and widespread costs
C) concentrated benefits and widespread costs
D) concentrated benefits and costs
E) regulating natural monopolies to avoid price gouging

Question 64

Rent seeking reduces our economy's overall efficiency by

A) getting government to adopt legislation that actually reduces production
B) disseminating market information
C) lowering taxes
D) getting voters more interested in politics
E) reducing equity

Question 65

Officials have estimated the size of the U.S.underground economy to be approximately

A) 6 to 8 percent of GDP
B) about $5 trillion
C) 50 percent of GDP
D) $60-80 billion
E) about $1 trillion

Question 66

Which of the following would be considered part of the underground economy?

A) selling subway tokens
B) tax avoidance
C) deducting housing interest when figuring your income taxes
D) sales of alcohol and cigarettes
E) paying by credit card to avoid writing a check

Question 67

Suppose a carpenter builds a bookcase for an attorney in exchange for legal services.This transaction is

A) a means of tax avoidance
B) likely to be taxed
C) not part of the economy's total production
D) a means of tax evasion
E) likely to result in double taxation

Question 68

Tax evasion is a legal attempt to arrange one's economic affairs to pay the least tax possible.

Question 69

A tax on productive activity tends to

A) increase formal market activity because it decreases prices
B) decrease formal market activity because it increases work incentives
C) decrease formal market activity because it lowers the return on such activity
D) decrease activity in the underground economy because people are afraid of being connected with tax fraud
E) increase activity in the underground economy because people are afraid of being connected with tax fraud

Question 70

Some of the nation's best minds are occupied with devising schemes to avoid taxes and to transfer income to favored groups at the expense of market efficiency.These activities are called

A) rational ignorance
B) choice of the cyclical majority
C) rent seeking
D) competing interest legislation
E) a zero-sum game

Question 71

The term underground economy refers to

A) the coal-mining industry
B) all ore mining
C) the subway system
D) purely illegal activity
E) market activity not reported to the government

Question 72

Tax evasion differs from tax avoidance in the sense that evasion

A) is easier
B) can only be done through an accountant
C) is legal
D) is illegal
E) is encouraged by the Internal Revenue Service

Question 73

Exhibit 16-4

Refer to Exhibit 16-4.Suppose the government announced it would give monopoly power to one firm in the industry through an exclusive license.According to the theory of rent seeking,what is the maximum amount that might be spent on rent seeking to get that license?

A) $500,000
B) $8
C) $250,000
D) $150,000
E) $75,000

Question 74

One goal of political action committees is to

A) encourage people to become more active in politics
B) engage in rent seeking
C) help raise funds for government agencies
D) evade taxes
E) make it easier for legislators to accept the median voter model

Question 75

Rent seeking activities by special interest groups result in

A) greater economic activity by promoting efficiency in government
B) lower economic activity by diverting resources to less-productive or nonproductive uses
C) a more equal distribution of income and wealth in the nation
D) lower expenditures by government through an increase in taxes
E) greater efficiency in the private economy and increased wealth for society

Question 76

According to rent-seeking theory,which group is most likely to benefit from representative democracy?

A) consumers
B) taxpayers
C) the poor
D) children
E) lawyers

Question 77

The total welfare cost of a monopoly that engages in rent-seeking activities

A) equals only the portion of lost consumer surplus that is not transferred to the monopolist
B) includes the use of resources devoted to rent seeking
C) equals the total reduction in consumer surplus
D) equals the total economic profit earned by the monopolist
E) excludes the use of resources devoted to rent seeking

Question 78

An increase in income tax rate may lead to:

A) Less legal tax evasion
B) Higher incentive to work
C) Less underreporting of income
D) More underreporting of income
E) More charity donations

Question 79

Special-interest groups have little incentive to

A) earn profits
B) redistribute wealth
C) lobby Congress
D) make the economy more efficient
E) seek regulation beneficial to them

Question 80

A rise in marginal income tax rates would likely increase the size of the underground economy.