Question 1

When governments become more heavily involved in taxing one group in order to provide benefits to other groups, which of the following will be encouraged?

Accepted Answer

When governments heavily tax one group to provide benefits to another group, it creates an environment where rent-seeking activity becomes more prevalent. Rent-seeking refers to individuals or groups attempting to use the political process to obtain benefits at the expense of others. This can lead to inefficiencies and distortions in the economy as resources are redirected towards rent-seeking activities rather than productive economic activities.

Question 2

Dairy farmers hold an annual Capitol Hill ice cream social that provides free ice cream for congressional staffers during which time representatives from the industry discuss issues with, and provide information to, congressional staff. This is an example of

Accepted Answer

This is an example of rent seeking, where dairy farmers are attempting to influence policy in their favor by providing free ice cream and information to congressional staffers.

Question 3

Which of the following represents why private production tends to be more efficient then government production?

Accepted Answer

The answer of Which of the following represents why private...

Question 4

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

When the government increases its activity to redistribute income among citizens, it creates opportunities for individuals and firms to engage in rent-seeking activities. Rent-seeking refers to efforts to gain income or wealth by manipulating the economic or political environment instead of by creating new wealth. As a result, there is a high likelihood of an increase in favor seeking and cronyism.

Question 5

Public choice analysis indicates

Accepted Answer

Public choice analysis indicates that rent-seeking activities, which involve using the political process to gain wealth or resources, can lead to inefficiencies and reduce economic growth. However, if the legal or constitutional structure of a nation makes it difficult to take the property or income of others through the political process, rent seeking will be less attractive. Therefore, choice C is the best answer as it aligns with the findings of public choice theory. Answers A, B, and D are not supported by public choice theory.

Question 6

Economics indicates that government funding of special interest projects and favoritism of some business firms relative to others will lead to

Accepted Answer

When government funding is driven by political considerations rather than market forces, it often results in inefficient allocation of resources. This is because projects may be funded based on factors such as political connections rather than economic viability or potential benefits to society. This can lead to misallocation of resources and potentially negative economic outcomes.

Question 7

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

The incentive for a manager of a publicly operated firm to promote internal efficiency of their operations would be 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. This is because voters do not have the ability to monitor the day-to-day operations of these firms, and public officials do not have a personal financial stake in the success of the firm. Therefore, there is little motivation for managers to focus on increasing efficiency.

Question 8

In 2006, the American Association of Retired Persons (AARP) spent over $70 million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics, the term used to describe such activity is

Accepted Answer

Rent seeking is a term used in economics to describe the activity of individuals or organizations that seek to increase their own wealth or status through government policies or subsidies rather than through productive economic activity. The AARP's lobbying efforts to get policies enacted that benefit retirees is an example of rent seeking.

Question 9

Crony capitalism is present when

Accepted Answer

Crony capitalism is the practice where businesses provide benefits or favors to politicians to achieve favorable policies or regulations for their own gain. This exchange of political support for financial benefits is usually done through campaign contributions, lobbying, or other forms of political influence. It leads to an unfair advantage for certain businesses over others and undermines free market principles.

Question 10

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

Public choice theory holds that concentrated interest groups, which have the resources and organization to exert political influence, are more likely to benefit from government policies than diffuse groups like the poor or consumers. This is because political representatives have more incentive to cater to the demands of these powerful interest groups, which can provide financial and electoral support, than to broad-based constituencies with less political clout. Therefore, government income transfers are more likely to be appropriated by concentrated interest groups that can lobby for targeted benefits than by diffuse groups that lack the means to do so.

Question 11

If new regulations make it illegal to sell older model electrical appliances, then

Accepted Answer

If older model appliances become illegal to sell, consumers will have no choice but to purchase newer models that meet the new regulations. This will increase demand for the newer, compliant models, leading to a rise in profits for producers of those models.

Question 12

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

Accepted Answer

Rent seeking is the process of seeking profits by manipulating public policy or economic conditions, rather than by creating value through economic activities. Resources used in rent seeking have an opportunity cost to society because they could have been used for productive economic activities. Therefore, rent seeking is counterproductive because it diverts resources away from creating wealth in the private sector.

Question 13

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

Accepted Answer

Producers are typically better represented in lobbying efforts and other political processes because they are often better organized and have more resources to devote to these efforts. Consumers, on the other hand, are much more diffuse and less organized, making it more difficult for them to effectively advocate for their interests.

Question 14

Which of the following factors explains why managers of government agencies have little incentive to achieve operational efficiency?

Accepted Answer

Public-sector managers do not face the risk of bankruptcy since they have a guaranteed source of funding, which reduces their incentive to achieve operational efficiency.

Question 15

Public choice theory suggests that politicians will be most likely to favor redistribution of income from

Accepted Answer

Public choice theory suggests that politicians are more likely to favor policies that benefit well-organized interest groups over unorganized taxpayers. This is because well-organized interest groups can provide more campaign contributions or other forms of support that are crucial for a politician's election or re-election. Redistribution of income from the rich to the poor or from well-organized business groups to consumers may not benefit the politicians as much, as these groups may not be able to provide the same level of support.

Question 16

Most income transfer programs in the United States

Accepted Answer

The answer of Most income transfer programs in the United...

Question 17

Approximately what percent of government transfer payments are directed toward the poor (means tested)?

Accepted Answer

The answer of Approximately what percent of government transfer payments...

Question 18

Which of the following is true?

Accepted Answer

The statement in option A is true based on the concept of rent-seeking, which refers to individuals or groups seeking to obtain economic gain through political means, rather than through productive activities. The easier it is to use the political process to obtain personal gain at the expense of others, the greater the incentive to engage in rent-seeking activities. Options B and C are false. Research has shown that rent-seeking can lead to a misallocation of resources, reduce economic efficiency, and hinder economic growth. Also, income transfers directed towards the poor constitute a much smaller proportion of income transfers in the United States.

Question 19

Which of the following factors explains why managers of government agencies (the public sector) have little incentive to operate efficiently?

Accepted Answer

Public-sector managers have no fear of losses and bankruptcy when operational efficiency is not achieved.

Question 20

As both the budget and regulatory powers of government grow, public choice analysis indicates that individuals and groups will find it in their interest to

Accepted Answer

Public choice theory suggests that individuals and groups will seek to maximize their personal gains and benefits. As the government's budget and regulatory powers grow, there is an incentive for individuals and groups to spend more time and resources on rent-seeking activities such as lobbying and seeking government benefits, rather than on market production. Therefore, individuals and groups will find it in their interest to engage in more rent-seeking activities.

Quiz 6: The Economics of Collective Decision-Making