Question 1

Under democratic representative government, spending on a government program will likely be larger than the amount consistent with economic efficiency when

Accepted Answer

A)  tax costs are levied in direct proportion with the benefits received.
B)  both the costs and benefits are widespread among the voters.
C)  benefits of the program are highly concentrated, while the costs are widely dispersed among voters.
D)  costs of the program are highly concentrated, while the benefits are widely dispersed among voters.E) All of the above
F) A) and D)

Question 2

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies)  designed to redistribute income among citizens?

Accepted Answer

A)  improvement in the operational efficiency of government agencies
B)  rapid economic growth
C)  a reduction in the amount of lobbying
D)  an increase in rent-seeking activityE) A) and B)
F) A) and C)

Question 3

Economic theory indicates that the behavior of

Accepted Answer

A)  government employees differs from the behavior of employees in the private sector because government employees generally disregard their own personal self-interest when making decisions.
B)  elected public officials differs from the behavior of all other individuals in society because they are not influenced by private interests.
C)  individuals when they make decisions about who to vote for is very different from the behavior of these same individuals when they make other types of choices.
D)  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.E) A) and B)
F) A) and C)

Question 4

Which of the following provides the most reasonable explanation for why agricultural interests lobby for higher farm subsidies and price supports?

Accepted Answer

A)  Without the farm subsidies, food shortages would result.
B)  Subsidies promote the efficient use of agricultural resources.
C)  Agricultural interests seek a redistribution of income favoring themselves.
D)  The price support programs reduce food costs, which helps the poor.E) A) and B)
F) A) and C)

Question 5

Payments that users (consumers)  are required to make if they want to receive certain services provided by the government are called

Accepted Answer

A)  tax deductions.
B)  transfer payments.
C)  user charges.
D)  sales taxes.E) A) and B)
F) A) and C)

Question 6

According to public choice theory, which of the following groups will likely benefit the most from government income transfers under a system of representative democracy?

Accepted Answer

A)  the poor
B)  consumers
C)  small businesses
D)  concentrated interest groupsE) None of the above
F) A) and B)

Question 7

From the standpoint of society as a whole, rent seeking is

Accepted Answer

A)  counterproductive because it takes resources away from the creation of wealth in the private sector.
B)  counterproductive because it fails to alter public policy.
C)  productive because each interest group gains more than they spend on rent-seeking activities.
D)  productive because the resources used in rent seeking have no opportunity cost to society.E) None of the above
F) B) and C)

Question 8

Government action will often result in the counterproductive use of resources because

Accepted Answer

A)  there is often a conflict between winning political elections and adoption of only productive programs.
B)  many politicians are not interested in how their legislative votes will influence their chances of winning future elections.
C)  politicians are often unwilling to listen to interest groups that have specialized knowledge.
D)  voter participation is low; if more people voted, the political process would be more efficient.E) B) and D)
F) A) and D)

Question 9

Government decisions tend to be biased toward actions that have

Accepted Answer

A)  current costs and future benefits that are both easily observable.
B)  future costs that are difficult to identify and current benefits that are easily observable.
C)  future costs and future benefits that are both difficult to identify.
D)  current costs that are easily observable and future benefits that are difficult to identify.E) All of the above
F) B) and D)

Question 10

Economic analysis suggests that bureaucrats and public-sector managers have a strong incentive to

Accepted Answer

A)  make sure that their budgets are as small as possible so more funds will be available for other government programs.
B)  expand their budgets to sizes beyond what would be considered economically efficient.
C)  ensure that their budgets are exactly the size that would be considered economically efficient.
D)  economize on their spending and return unspent funds to the general treasury.E) B) and C)
F) A) and B)

Question 11

Which of the following is the most likely explanation for the imposition of a price floor in the market for corn?

Accepted Answer

A)  Policymakers have studied the effects of the price floor carefully and they recognize that the price floor will improve the efficiency of resource use.
B)  Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into enacting the price floor.
C)  Buyers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.
D)  Sellers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.E) B) and D)
F) None of the above

Question 12

Public choice theory assumes voters, politicians, and other individuals in the public sector are largely motivated by

Accepted Answer

A)  a desire to promote the general welfare.
B)  a desire to meet the conditions of economic efficiency for the economy as a whole.
C)  altruism or the good of the public as a whole.
D)  personal self-interest.E) B) and C)
F) A) and D)

Question 13

Public choice theory indicates someone who spends more time evaluating which tennis racket to buy than deciding which U.S. Senate candidate to support

Accepted Answer

A)  is behaving irrationally.
B)  is behaving rationally, given the structure of incentives confronted.
C)  will likely be responsible for electing the wrong senator.
D)  is failing to maximize his own personal utility.E) None of the above
F) All of the above

Question 14

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from

Accepted Answer

A)  potato farmers who own land that wouldn't be irrigated by the project.
B)  taxpayers who would pay for the project.
C)  consumers of potatoes who might benefit from an expansion in supply and slightly lower potato prices.
D)  potato farmers who own the land to be irrigated.E) B) and C)
F) C) and D)

Question 15

People who spend more time and effort investigating the advantages and disadvantages of different automobile models when they go to purchase one than they do investigating the strengths and weaknesses of presidential candidates are saying, in effect, that

Accepted Answer

A)  a good car is more important to their well-being than a good president.
B)  they expect to use the information on the merits of alternative cars to greater personal advantage than they could information on the merits of alternative presidential candidates.
C)  they are irrational, because the choice of a president is obviously far more important than the choice of a car.
D)  they do not think it matters who is elected president.E) B) and D)
F) B) and C)

Question 16

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is

Accepted Answer

A)  the difference in incentive structure motivating economic activity.
B)  its ability to direct resources in a manner that is more economically efficient.
C)  its ability to produce goods and services that people value.
D)  its ability to use coercive force against people to modify their behavior or force them to pay for a good or service whether they benefit from it or not.E) B) and C)
F) C) and D)

Question 17

Economic theory implies that the incentive for a manager of a publicly operated firm (for example, a state university or the post office)  to promote internal efficiency of their operations would be

Accepted Answer

A)  strong because inefficiency is easily detected and leads to the loss of voter support.
B)  strong because public officials are unconcerned about personal gain.
C)  weak because government employees are less educated than employees who work in the private sector.
D)  weak because it is difficult for voters to detect inefficiency and for public officials to gain from actions that would improve the efficiency of government.E) All of the above
F) A) and D)

Question 18

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

Accepted Answer

A)  consumers have a strong incentive to search out those firms offering them the best deal.
B)  private producers of such goods will have little incentive to control costs and provide them at low prices.
C)  goods and services will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs.
D)  the invisible hand will direct consumers and producers toward an efficient level of output.E) A) and B)
F) A) and C)

Question 19

Which one of the following is a major difference between market and collective action through government?

Accepted Answer

A)  Individuals are motivated by personal interests when making market choices, but they will be motivated primarily by the public interest when making collective choices.
B)  Competitive behavior is present when decisions are made in the marketplace, but competition is absent when choices are made collectively.
C)  Scarcity constrains output when decisions are made in the market sector, but scarcity is absent when goods are provided by the government.
D)  In the market sector, there is generally a one-to-one link between payment and consumption; this link is often absent in the government sector.E) B) and D)
F) All of the above

Question 20

Producers tend to be better represented in lobbying efforts and other elements of the political process than consumers because

Accepted Answer

A)  producers are generally more intelligent and, therefore, better informed.
B)  producers are generally better organized than consumers.
C)  producers are better educated than consumers.
D)  the number of producers affected by the outcome of a particular political issue is usually greater than the number of consumers affected.E) A) and B)
F) C) and D)

Exam 6: The Economics of Political Action

Economic theory implies that the incentive for a manager of a publicly operated firm (for example, a state university or the post office) to promote internal efficiency of their operations would be

Correct AnswerverifiedShow Answer

Which of the following is a predictable side effect of increased government activity (for example, taxes and subsidies) designed to redistribute income among citizens?

Correct AnswerverifiedShow Answer

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

Correct AnswerverifiedShow Answer

Public choice theory assumes voters, politicians, and other individuals in the public sector are largely motivated by

Correct AnswerverifiedShow Answer

Which one of the following is a major difference between market and collective action through government?

Correct AnswerverifiedShow Answer

Producers tend to be better represented in lobbying efforts and other elements of the political process than consumers because

Correct AnswerverifiedShow Answer

Economic theory indicates that the behavior of

Correct AnswerverifiedShow Answer

Which of the following provides the most reasonable explanation for why agricultural interests lobby for higher farm subsidies and price supports?

Correct AnswerverifiedShow Answer

According to public choice theory, which of the following groups will likely benefit the most from government income transfers under a system of representative democracy?

Correct AnswerverifiedShow Answer

Economic analysis suggests that bureaucrats and public-sector managers have a strong incentive to

Correct AnswerverifiedShow Answer

Payments that users (consumers) are required to make if they want to receive certain services provided by the government are called

Correct AnswerverifiedShow Answer

If a federal agency requested funds to build a dam on an Idaho river to irrigate nearby farmland used for growing potatoes, the most active support for the project probably would come from

Correct AnswerverifiedShow Answer

People who spend more time and effort investigating the advantages and disadvantages of different automobile models when they go to purchase one than they do investigating the strengths and weaknesses of presidential candidates are saying, in effect, that

Correct AnswerverifiedShow Answer

Which of the following is the most likely explanation for the imposition of a price floor in the market for corn?

Correct AnswerverifiedShow Answer

From the standpoint of society as a whole, rent seeking is

Correct AnswerverifiedShow Answer

Public choice theory indicates someone who spends more time evaluating which tennis racket to buy than deciding which U.S. Senate candidate to support

Correct AnswerverifiedShow Answer

Under democratic representative government, spending on a government program will likely be larger than the amount consistent with economic efficiency when

Correct AnswerverifiedShow Answer

Government action will often result in the counterproductive use of resources because

Correct AnswerverifiedShow Answer

Government decisions tend to be biased toward actions that have

Correct AnswerverifiedShow Answer

At the most basic level, the distinguishing characteristic of government that makes it different from private firms is

Correct AnswerverifiedShow Answer

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