Question 1

In corporations, owners are __________________ and managers are ________________.

Accepted Answer

A)  agents; principals
B)  stockholders; bondholders
C)  agents; employees
D)  principals; agentsE) A) and D)
F) C) and D)

Question 2

Refer to the table.The inconsistency illustrated by the table is that, while a majority of voters prefer the:

Accepted Answer

A)  highway to the lighthouse and the submarine to the highway, they also prefer the lighthouse to the submarine.
B)  lighthouse to the highway and the lighthouse to the submarine, they also prefer the submarine to the highway.
C)  highway to the lighthouse and the submarine to the lighthouse, they also prefer the submarine to the highway.
D)  lighthouse to the submarine and the highway to the submarine, they also prefer the highway to the lighthouse.E) A) and B)
F) A) and C)

Question 3

Refer to the table.In a choice between parks and education:

Accepted Answer

A)  no voter decision is possible.
B)  a majority of voters would favor education.
C)  the outcome would depend on which item was listed first on the ballot.
D)  a majority of voters would favor parks.E) A) and B)
F) C) and D)

Question 4

As it relates to the political process, the principal-agent problem results from the:

Accepted Answer

A)  negative externalities that are created by some policy actions.
B)  political rules that encourage elected officials to engage in unethical and illegal behavior.
C)  inconsistency between voters' interest in programs and politicians' interest in reelection.
D)  paradox of voting.E) B) and C)
F) C) and D)

Question 5

Weak government enforcement of contracts and laws tends to:

Accepted Answer

A)  increase economic efficiency by minimizing government interference.
B)  stimulate innovation and investment.
C)  discourage economic activity by encouraging private-sector coercion such as blackmail and extortion.
D)  not affect economic activity, as incentives for theft and deception are low.E) None of the above
F) B) and C)

Question 6

Changes in tax rates are a form of monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

The information contained in the table illustrates:

Accepted Answer

A)  political logrolling.
B)  the median-voter model.
C)  the paradox of voting.
D)  the principal-agent problem theorem.E) A) and B)
F) A) and C)

Question 8

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Accepted Answer

A)  logrolling.
B)  the paradox of voting.
C)  the median-voter model.
D)  the special-interest effect.E) B) and C)
F) None of the above

Question 9

Chronic budget deficits can be attributed to:

Accepted Answer

A)  unfunded liabilities.
B)  voters wanting government programs but not wanting to pay taxes.
C)  inappropriate monetary policy.
D)  state budget laws.E) B) and C)
F) All of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

In representative democracy, voters are ____________ and politicians are ______________.

Accepted Answer

A)  agents; principals
B)  logrollers; principals
C)  agents; employees
D)  principals; agentsE) A) and D)
F) All of the above

Question 12

The unlawful misdirection of governmental resources for personal gain is known as:

Accepted Answer

A)  political corruption.
B)  logrolling.
C)  adverse selection.
D)  the special-interest effect.E) A) and B)
F) A) and D)

Question 13

(Consider This)  Which of the following is an example of voter failure?

Accepted Answer

A)  Voters support adding stop lights that would increase congestion and travel costs without increasing safety or convenience.
B)  Government officials ignore voter calls for regulations that would reduce negative externalities and enhance efficiency.
C)  Voters wanting greater highway safety are unable to express their preferences on how to achieve it because the voting system doesn't allow it.
D)  Voters wanting more government services are divided on what services they most prefer, leaving government officials to determine what is best.E) B) and D)
F) B) and C)

Question 14

The appeal to government for special benefits at taxpayers' or someone else's expense is called:

Accepted Answer

A)  rent seeking.
B)  rent expense.
C)  rent revenue.
D)  land rent.E) A) and B)
F) All of the above

Question 15

Regulatory capture often occurs because of which of the following?

Accepted Answer

A)  Government officials want stronger control over industry regulation.
B)  Nearly everyone with expertise works in the regulated industry.
C)  Patent law allows firms to gain monopoly power easily and therefore control a market.
D)  Consumer groups are effective at lobbying the government for industry regulation.E) None of the above
F) A) and B)

Question 16

Refer to the table.In a choice between the highway and the lighthouse:

Accepted Answer

A)  a majority of voters favor the lighthouse.
B)  a majority of voters favor the highway.
C)  the voters are indifferent as between the two.
D)  no voter decision is possible.E) B) and C)
F) None of the above

Question 17

Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community.No vote trading is allowed.  If the tax cost of this proposed project is $300 per person, a majority vote will:

Accepted Answer

A)  defeat this project and resources will be underallocated to it.
B)  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.E) B) and C)
F) A) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Public choice economists contend public bureaucracies are inefficient primarily because:

Accepted Answer

A)  the value of public goods is more easily measured than is the value of private goods.
B)  of the absence of competitive market pressures.
C)  public sector workers are more security-conscious than are private sector workers.
D)  relatively low pay in government attracts workers of lesser quality.E) None of the above
F) All of the above

Question 20

Which of the following would best explain why regulatory capture is a problem?

Accepted Answer

A)  The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness.
B)  Regulatory capture unduly increases the size and power of government, increasing costs for taxpayers.
C)  Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices.
D)  The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.E) B) and D)
F) None of the above

Exam 5: Part B: Governments Role and Government Failure

Which of the following would best explain why regulatory capture is a problem?

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The information contained in the table illustrates:

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(Consider This) Which of the following is an example of voter failure?

Correct AnswerverifiedShow Answer

The appeal to government for special benefits at taxpayers' or someone else's expense is called:

Correct AnswerverifiedShow Answer

As it relates to the political process, the principal-agent problem results from the:

Correct AnswerverifiedShow Answer

Regulatory capture often occurs because of which of the following?

Correct AnswerverifiedShow Answer

Answer the question on the basis of this table showing the marginal benefit that a particular public project will provide to each of the three members of a community.No vote trading is allowed. If the tax cost of this proposed project is $300 per person, a majority vote will:

Correct AnswerverifiedShow Answer

Public choice economists contend public bureaucracies are inefficient primarily because:

Correct AnswerverifiedShow Answer

Refer to the table.The inconsistency illustrated by the table is that, while a majority of voters prefer the:

Correct AnswerverifiedShow Answer

Refer to the table.In a choice between the highway and the lighthouse:

Correct AnswerverifiedShow Answer

The unlawful misdirection of governmental resources for personal gain is known as:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In representative democracy, voters are ____________ and politicians are ______________.

Correct AnswerverifiedShow Answer

Weak government enforcement of contracts and laws tends to:

Correct AnswerverifiedShow Answer

Refer to the table.In a choice between parks and education:

Correct AnswerverifiedShow Answer

Changes in tax rates are a form of monetary policy.

Correct AnswerverifiedShow Answer

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

Correct AnswerverifiedShow Answer

Chronic budget deficits can be attributed to:

Correct AnswerverifiedShow Answer

In corporations, owners are __________________ and managers are ________________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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In representative democracy, voters are and politicians are __.

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In corporations, owners are __ and managers are .

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