Question 1

Rent-seeking occurs when&#10;A)the government regulators for an industry are taken over by the businesses they are meant to regulate&#10;B)the owner of land collects rent from her tenants&#10;C)an organization seeks to get benefits from the government using lobbying&#10;D)a person seeks the lowest cost apartment he can afford

Accepted Answer

Rent-seeking refers to the act of seeking private gain through the manipulation of economic resources. In this case, an organization seeks rent, subsidy, or tariff from the government using lobbying, instead of creating wealth through innovation and productivity. A and B refer to specific instances of rent collection, while D refers to a consumer making a rational economic decision.

Question 2

What is the optimum tax rate?&#10;A)64-46 = 18&#10;B)64-55 = 9&#10;C)55-45 = 10&#10;D)77.5-55 = 22.5

Accepted Answer

A

Question 3

&#10;In Figure 5-6 the deadweight loss is ____for the price ceiling and _____ for the price floor.&#10;A)C+E for both&#10;B)D+E for the price ceiling and B+C for the price floor&#10;C)F for the price ceiling and A for the price floor&#10;D)C for the price ceiling and C+E for the price floor

Accepted Answer

A

Question 4

&#10;In figure 5-15 what is the CHANGE in the producer surplus due to the tax?&#10;A)E+F+G&#10;B)E+F&#10;C)B+C&#10;D)B+E+H

Accepted Answer

The change in producer surplus due to the tax is the area of the triangle E+F+G.

Question 5

Suppose that the production of a good produces a negative externality resulting in higher marginal social costs (MSC) than marginal private costs (MPC).Suppose MPC=10+Q and MSC=10+1.5Q and Demand is P=100-Q.
What is the social equilibrium quantity and price?

A)Q = 45, P = 55
B)Q = 36, P = 64
C)Q = 55, P = 65
D)Q = 35, P = 45

Accepted Answer

To find the social equilibrium quantity and price, we need to find the intersection of MSC and Demand. 
10+1.5Q = 100-Q 
Solving for Q, we get Q = 36. 
To find the price, we plug in Q=36 into the demand equation: P = 100-36 = 64. 
Therefore, the social equilibrium quantity is 36 and the price is 64. Option B is the correct answer.

Question 6

Using the same figure, what is the net benefit with the subsidy?&#10;A)B+C+D+E+H-I&#10;B)A+B+C+F-I&#10;C)H+D+E-I&#10;D)A+B+C+D+E-I

Accepted Answer

The answer of Using the same figure, what is the...

Question 7

&#10;What is the Government Surplus with the Subsidy in place?&#10;A)negative A+B+C+D+E&#10;B)negative A+H+I&#10;C)negative B+C+D+E+H+I&#10;D)negative B+C+D+E&#10;E)none of the above, the government surplus is positive

Accepted Answer

The government surplus with the subsidy in place is negative because the cost of the subsidy (B+C+D+E+H+I) exceeds any potential gains, leading to a net negative impact on government finances.

Question 8

The school of thought that believes self-interested voters, politicians and interest groups limit government's ability to produce effective policy is known as&#10;A)Chicago School&#10;B)Virginia School&#10;C)Austrian School&#10;D)Keynesian School

Accepted Answer

The belief that self-interested actors limit effective government policy is a key tenet of the Virginia School of political economy, which emphasizes the importance of limiting government intervention and promoting individual freedom and responsibility. The Chicago School and Austrian School also prioritize free market principles, but do not necessarily focus on the role of self-interested actors in limiting effective government policy. The Keynesian School, on the other hand, generally advocates for government intervention in the economy to promote stability and growth, and does not necessarily prioritize individual self-interest.

Question 9

What is the government surplus with the optimal tax in place?&#10;A)Zero&#10;B)$324&#10;C)$648&#10;D)$1,012.5

Accepted Answer

The optimal tax will be achieved at the point where the marginal cost of providing public goods intersects with the demand curve. In this case, the optimal tax is $6 per unit. With this tax, the quantity demanded will be 27 units, which can be seen by finding the quantity demanded at a price of $8 (Qd = 36 - 2P = 36 - 2(8) = 20, and then adding the change in quantity from a $1 decrease in price, which is 7). Therefore, the government's total revenue will be $162 ($6 tax x 27 units). The cost of providing the public good at 27 units is $81 ($3 x 27 units). Therefore, the government surplus will be $81 (the difference between revenue and cost) + $567 (the surplus from the unconsumed units, which is 21 units x $3 each) = $648.

Question 10

&#10;In Figure 5-15 what is the government surplus with the tax in place?&#10;A)A+B+C+D&#10;B)B+C+D+E+F+G&#10;C)B+C+E+F&#10;D)E+F+G+H+I

Accepted Answer

Government surplus with a tax in place typically includes the tax revenue generated from the tax. This is represented by areas under the demand curve and above the supply curve, within the range of quantities traded after the tax is imposed. Choices B+C+E+F accurately represent this concept, capturing the tax revenue without including areas that represent consumer or producer surplus.

Deck 5: Efficiency and the Role of Government