ECON 202 STUDY GUIDE Q & A
Test Bank: I Topic: Governments EconomicRole
(Consider This) Subsidies for mohair production illustrate
why special-interest effects are often characterized by concentrated benefits and diffuse costs.
why special-interest effects are often characterized by concentrated costs and diffuse benefits.
that larger groupscarry greater political weight than smaller groups.
the moral hazard problem.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Consider This) Smaller groups are sometimes able to achieve political victories against larger groups. This is referred to as the
moral hazard problem.
featherbedding problem.
C. collective action problem.
D. pork barrel problem.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Consider This) The collective action problemrefers to
logrolling behavior that results in inefficient policies.
the tendency for legislatures to enact policiesthat are economically harmful.
the lack of politicalpower of small groups of people.
D. difficulty in organizing and motivating large groups to achieve desired outcomes.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Consider This) A 2015 study of hospitals, power plants, and water utilities found that
public companies violatedhealth and safety laws more than private companies.
government employees are systematically less competent than those in the privatesector.
private companiesviolated health and safety laws more than public companies.
there was no significant difference in the number of health and safety violations between public and private companies.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Consider This) According to a 2015 study, health and safety violations are more prevalent in publiccompanies because
private companieshave greater technical expertise than public companies.
B. public companiesare less likelyto be fined for violating health and safety laws than private companies.
laws for publiccompanies are more stringent, making it more difficult for public companies to comply.
public companies are more closely monitored, making it easierto detect violations.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Last Word) In 2011, Congress funded a sanctuaryfor white squirrels, a giant roadside coffee pot, and an antique bicycle museum. These are examples of
the paradoxof voting.
B. pork barrel politics.
the benefits-received principle.
the adverseselection problem.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Last Word) From 2006-2010, the federal government paid $600 millionin retirement benefits to deceasedfederal employees,with the checks being illegally cashed by relatives. This example illustrates
the benefits-received principle.
logrolling.
C. bureaucratic inefficiency.
D. the problemof limited and bundled choices.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
(Last Word) In 2004, Congress passeda corporate tax relief bill with 276 provisions for tax breaksto groups such as restaurant owners, Hollywood producers, and NASCARtrack owners. Thisisan example of the
special-interest effect.
benefits-received principle.
paradox of voting.
principal-agent problem.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
True / False Questions
The government's abilityto force people to do thingscan increase economic efficiency.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: I Topic: Governments EconomicRole
Government's abilityto enforce laws and contracts increases private-sector economicrisks.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: I Topic: Governments EconomicRole
The invisiblehand guides government's economic activityjust as it does with privateeconomic activity.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: I Topic: Governments EconomicRole
Because of the force of law and bureaucratic structure, government accountability is less of a problem than in the private sector.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: I Topic: Governments EconomicRole
The size and scope of government inhibit the flow of information to decisionmakers, leading to inefficient outcomes.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-01 Describe how governments power to coerce can be economically beneficial and listsome of the difficulties associated with managingand directing the government.
Test Bank: I Topic: Governments EconomicRole
The pursuitthrough government of a transfer of wealth at society's expense is called"rent seeking."
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
The principal-agent problem is a problemfor the private sector but does not apply to political decision making.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Medicare is the U.S. government'slargest unfunded liability.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
A debt crisis refers to how much government spending exceeds tax revenues in a given year.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Fiscal policy is more susceptible to politicization than monetary policy.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Changes in tax rates are a form of monetarypolicy.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Monetary policyattempts to change the level of spendingby altering interestrates.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
The problem of limitedand bundled choices explains why many voters cannot fully express their political preferences.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Regulatory capture occurs when government exerts excessive control over an industry.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
The Securities and Exchange Commission's supervision of WallStreet financial firms is a possible example of regulatory capture.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Economists widely support deregulation of industries that tend towardmonopoly or generatesubstantial negative externalities.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Deregulation is seen as a solutionto regulatory capture because it eliminates the regulatory agency that can or has been captured.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Government loan guarantees tend to socialize gains and privatize losses.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Government guarantees that socialize losses and privatizegains tend to encouragerisky and imprudent investment.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-02 Discuss government failureand explain why it happens.
Test Bank: I Topic: Government Failure
Multiple Choice Questions
The field of economics that analyzes government decisionmaking, politics,and elections is called
public finance.
B. public choice theory.
collective economics.
political economy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public choice economists
analyze the incidenceof taxes.
are also known as Keynesian economists.
C. use the tools of economics to analyze decisionmaking, politics,and elections in the public sector.
D. are, by definition, economists employed by federal,state, and local governments.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Which one of the following topics would be of the mostinterest to a public choiceeconomist?
the theory of comparative advantage
the law of increasing opportunity cost
inflation andunemployment
D. rent-seeking behavior
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
An economic analysis of the relationship between proposedlegislation affectingmajor employers in each state and the voting patterns of senators and representatives in Congress on that legislation would fit within the subcategory of economicscalled
A. the economics of fiscal policy.
B. public choice theory.
behavioral economics.
monetarism.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
"Government failure" is a prominenttopic in
A. public choice theory.
Keynesian economics.
socialist theory.
behavioral economics.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public choice theory focuses on the economics of
fiscal and monetary policy.
the behavior of businessfirms.
antitrust and regulatory policy.
D. government decisionmaking, politics, and elections.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Because majority voting fails to incorporate the strength of the preferences of individual voters, it
A. creates negative externalities.
B. under some circumstances produces economically inefficient outcomes.
leads to marketfailure.
leads to politics dominated by special-interest groups.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Suppose that Katie and Kelly each expectsto receive $500 worth of marginalbenefits from a proposednew recreation center, whereas Kerry expects to receive only $100 worth. If the proposed tax leviedon each for the center would be
$400, a majorityvote will
defeat this projectand resources will be underallocated to it.
pass this project and resources will be efficiently allocated.
pass this project and resources will be underallocated to it.
D. pass this project and resources will be overallocated to it.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Suppose that Steve and Susie each perceive$200 of marginal benefit from a proposed new park, whereas Elizabeth perceives $800. If the proposedtax levied on each for the parkwould be $300, a majorityvote will
A. defeat this project and resources will be underallocated to it.
defeat this projectand resources will be efficiently allocated.
pass this project and resources will be underallocated to it.
pass this project and resources will be overallocated to it.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
107.
Answer the question on the basis of this table showingthe marginal benefitthat a particular public projectwill provide to each of the three members of a community. No vote trading is allowed.
Voter
Marginal Benefit
Xavier
$ 500
Yoho
200
Zest
2,000
If the tax cost of this proposed projectis $600 per person, a majorityvote will
A. defeat this project and resources will be underallocated to it.
defeat this projectand resources will be allocated efficiently.
pass this project and resourceswill be overallocated to it.
defeat this projectand resources will be overallocated to it.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
108.
Answer the question on the basis of this table showingthe marginal benefitthat a particular public projectwill provide to each of the three members of a community. No vote trading is allowed.
Voter
Marginal Benefit
Xavier
$ 500
Yoho
200
Zest
2,000
If the tax cost of this proposed projectis $300 per person, a majorityvote will
defeat this projectand resources will be underallocated to it.
pass this project and resources will be allocated efficiently.
C. pass this project and resources will be underallocated to it.
D. defeat this project and resources will be overallocated to it.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
109.
Answer the questionon the basis of this table showingthe marginal benefita particular public projectwill provide to each of the three members of a community.No vote trading is allowed.
Voter
Marginal Benefit
Xavier
$800
Yoho
800
Zest
100
If the tax cost of this proposed projectis $600 per person, a majorityvote will
defeat this projectand resources will be underallocated to it.
pass this project and resources will be allocated efficiently.
C. pass this project and resources will be overallocated to it.
D. pass this project and resources will be underallocated to it.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
The politicaltechnique calledlogrolling
always increases economic efficiency.
always decreaseseconomic efficiency.
C. involves trading votes to secure favorable outcomes that otherwisecould be rejected.
D. is an example ofthe paradox of voting.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
The tradingof votes by electedofficials to secure favorable outcomesis called
splitting the difference.
social engineering.
C. logrolling.
D. grandstanding.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Senator A agrees to vote for SenatorK's state project in exchange for Senator K voting for Senator A's state project. This is an exampleof
A. logrolling.
the paradoxof voting.
the principal-agent problem.
the median votermodel.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
A situationin which society may not be able to rank its preferences consistently through paired-choice majority voting refers to
A. logrolling.
B. the paradoxof voting.
the median-voter model.
the special-interest effect.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
The principle that under some circumstances majority voting fails to make consistentchoices reflecting the community's underlying preference is best demonstrated by the
A. paradoxof voting.
concept of logrolling.
median-voter model.
Coase theorem.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
According to the paradox of voting,
public goods that cost more than the total benefits they confer may get produced under majorityvoting.
trading of votes may either add to or subtract from economic efficiency.
the median voter decides what public goods all voters should have.
D. majority voting fails under some circumstances to make consistentchoices that reflect the community's underlying preferences.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Suppose that in a series of paired-choice votes, a new park is preferred to a new recreation center and a new recreation center is preferred to street widening.Also suppose that street widening is preferred to a new park. This set of votes is an example of the
principal-agent problem.
benefits-received principle.
median-voter model.
D. paradoxof voting.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public GoodLarryCurleyMoeLighthouseThird ChoiceFirst ChoiceSecond ChoiceHighwaySecond ChoiceThird ChoiceFirst ChoiceSubmarineFirst ChoiceSecond ChoiceThird Choice 117.
Refer to the table. In a choice between the highway and the lighthouse,
A. a majorityof voters favor the lighthouse.
B. a majority of voters favor the highway.
the voters are indifferent between the two.
no voter decisionis possible.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public GoodLarryCurleyMoeLighthouseThird ChoiceFirst ChoiceSecond ChoiceHighwaySecond ChoiceThird ChoiceFirst ChoiceSubmarineFirst ChoiceSecond ChoiceThird Choice 118.
Refer to the table. The inconsistency illustrated by the table is that, while a majority of voters prefer the
A. highway to the lighthouse and the submarine to the highway, they also prefer the lighthouse to the submarine.
lighthouse to the highwayand the lighthouse to the submarine, they also preferthe submarine to the highway.
highway to the lighthouse and the submarineto the lighthouse, they also prefer the submarine to the highway.
lighthouse to the submarine and the highway to the submarine, they also prefer the highway to the lighthouse.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public GoodLarryCurleyMoeLighthouseThird ChoiceFirst ChoiceSecond ChoiceHighwaySecond ChoiceThird ChoiceFirst ChoiceSubmarineFirst ChoiceSecond ChoiceThird Choice 119.
The information contained in the table illustrates
political logrolling.
the median-voter model.
C. the paradoxof voting.
D. the principal-agent problemtheorem.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public GoodAdamBobCarlPublic SafetySecond ChoiceThird ChoiceFirst ChoiceParksFirst ChoiceSecond ChoiceThird ChoiceEducationThird ChoiceFirst ChoiceSecond Choice 120.
Refer to the table.In a choice betweenpublic safety and parks,
the outcome would depend on which item was listed firston the ballot.
a majorityof voters would favor public safety.
no voter decisionis possible.
D. a majorityof voters would favor parks.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 05-03 Appendix: Explain the difficulties of conveying economic preferences through majorityvoting.
Test Bank: I Topic: Public Choice Theory and Voting Paradoxes
Public GoodAdamBobCarlPublic SafetySecond ChoiceThird ChoiceFirst ChoiceParksFirst ChoiceSecond ChoiceThird ChoiceEducationThird ChoiceFirst ChoiceSecond Choice 121.