Question 1

At the optimal quantity of a public good,

Accepted Answer

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.E) A) and B)
F) B) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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

Question 4

In the corporate world of business, the principal-agent problem arises between

Accepted Answer

A)   workers and managers.
B)   managers and stockholders.
C)   stockholders and bondholders.
D)   corporations and their banks.E) B) and D)
F) None of the above

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. 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

Accepted Answer

A)   accepted; the public good is produced, even though it is economically ineﬃcient.
B)   defeated; the public good is not produced, even though it would have been eﬃcient to do so.
C)   accepted; the public good is produced, which is economically eﬃcient.
D)   defeated; the public good is not produced, which is the proper outcome.E) A) and D)
F) A) and C) A

Question 7

Sometimes, public goods whose beneﬁts are less than their costs still get produced because

Accepted Answer

A)   the marginal beneﬁt is still larger than the marginal cost.
B)   of externalities in production.
C)   the beneﬁts accrue to politically powerful government oﬃcials and their constituents.
D)   of market failures.E) A) and B)
F) B) and D)

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Political logrolling always produces economically ineﬃcient outcomes.

Accepted Answer

A) True 
 B)False

Question 10

One implication of the median-voter model is that at any point in time, most voters will

Accepted Answer

A)   be happy with the amount of government involvement in the economy.
B)   ﬁnd government involvement in the economy to be too much.
C)   ﬁnd government involvement in the economy to be too little.
D)   be unhappy with the amount of government involvement in the economy.E) All of the above
F) A) and D)

Question 11

The pursuit through government for special beneﬁts at someone else's expense refers to

Accepted Answer

A)   logrolling.
B)   rent-seeking behavior.
C)   the paradox of voting.
D)   the median-voter model.E) A) and D)
F) None of the above

Question 12

(Consider This)  The government's subsidized loan program used with Angora goat farmers today

Accepted Answer

A)   has persisted well beyond its original purpose in the 1940s.
B)   is an example of the "special-interest effect."
C)   can be attributed to the principal-agent problem.
D)   is hard to stop because of the "concentrated beneﬁt and diffuse costs" problem.
E)   All of these choices are correct.F) A) and B)
G) C) and D)

Question 13

Describe how rent-seeking behavior works.

Accepted Answer

Rent-seeking is the appeal to government...

Question 14

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. 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. Who will likely vote in favor of
This proposal?

Accepted Answer

A)   Abby, Ben, Clara, and Joe
B)   Ben, Clara, Joe, and Matt
C)   Ben, Clara, and Joe
D)   Abby, Ben, and ClaraE) B) and C)
F) None of the above

Question 15

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) All of the above
F) C) and D) C

Question 16

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park,

Accepted Answer

A)   a majority of the voters would favor the park, 2-to-1.
B)   a majority of the voters would favor the stadium, 2-to-1.
C)   a majority of the voters would favor the park, 3-to-0.
D)   a majority of the voters would favor the stadium, 3-to-0.E) A) and D)
F) C) and D) A

Question 17

Professional sports teams will sometimes seek public subsidies for stadium ﬁnancing projects that produce large beneﬁts for a relatively small number of fans and impose small costs on a relatively large number of
People. Sometimes these efforts to secure public funding are successful even though the decision is not
Eﬃcient. This is an example of

Accepted Answer

A)   log-rolling.
B)   pork-barrel politics.
C)   the special-interest effect.
D)   market failure.E) A) and B)
F) B) and C)

Question 18

The trading of votes by elected oﬃcials to secure favorable outcomes is called

Accepted Answer

A)   splitting the difference.
B)   social engineering.
C)   logrolling.
D)   grandstanding.E) C) and D)
F) A) and C)

Question 19

(Consider This)  Street entertainers face the free-rider problem when they perform because of the

Accepted Answer

A)   law of demand.
B)   diminishing marginal utility.
C)   nonexcludability characteristic.
D)   rivalry characteristic.E) A) and B)
F) None of the above

Question 20

The situation where "the few who yell the loudest get heard" is referred to as the

Accepted Answer

A)   special-interest effect.
B)   principal-agent problem.
C)   moral hazard problem.
D)   adverse selection effect.E) All of the above
F) C) and D)

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

At the optimal quantity of a public good,

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

In the corporate world of business, the principal-agent problem arises between

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
A

Sometimes, public goods whose beneﬁts are less than their costs still get produced because

Correct Answer
verified

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.

Correct Answer
verified

Political logrolling always produces economically ineﬃcient outcomes.

Correct Answer
verified

One implication of the median-voter model is that at any point in time, most voters will

Correct Answer
verified

The pursuit through government for special beneﬁts at someone else's expense refers to

Correct Answer
verified

(Consider This) The government's subsidized loan program used with Angora goat farmers today

Correct Answer
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Describe how rent-seeking behavior works.

Correct Answer
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Rent-seeking is the appeal to government...
View Answer

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

Correct Answer
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C

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park,

Correct Answer
verified
A

Correct Answer
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The trading of votes by elected oﬃcials to secure favorable outcomes is called

Correct Answer
verified

(Consider This) Street entertainers face the free-rider problem when they perform because of the

Correct Answer
verified

The situation where "the few who yell the loudest get heard" is referred to as the

Correct Answer
verified

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

At the optimal quantity of a public good,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the corporate world of business, the principal-agent problem arises between

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Sometimes, public goods whose beneﬁts are less than their costs still get produced because

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Political logrolling always produces economically ineﬃcient outcomes.

Correct AnswerverifiedShow Answer

One implication of the median-voter model is that at any point in time, most voters will

Correct AnswerverifiedShow Answer

The pursuit through government for special beneﬁts at someone else's expense refers to

Correct AnswerverifiedShow Answer

(Consider This) The government's subsidized loan program used with Angora goat farmers today

Correct AnswerverifiedShow Answer

Describe how rent-seeking behavior works.

Correct AnswerverifiedRent-seeking is the appeal to government...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Refer to the provided table, which shows the ranked preferences of voters for three alternative projects, with "1" being the top preference. In a paired-choice vote between a stadium and a park,

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

The trading of votes by elected oﬃcials to secure favorable outcomes is called

Correct AnswerverifiedShow Answer

(Consider This) Street entertainers face the free-rider problem when they perform because of the

Correct AnswerverifiedShow Answer

The situation where "the few who yell the loudest get heard" is referred to as the

Correct AnswerverifiedShow Answer

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A

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Rent-seeking is the appeal to government...
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C

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A

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