Question 1

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for:

Accepted Answer

While there have been some attempts at deregulation in the pharmaceutical industry in terms of speeding up the drug approval process, the industry as a whole is still heavily regulated due to safety concerns and patent protections. The other industries listed have all been examples of successful deregulation, resulting in increased competition, lower prices, and improved service.

Question 2

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

The answer of Which of the following is considered a...

Question 3

When congressional representatives vote on an appropriations bill,they must vote yea or nay,taking the bad with the good.This statement best reflects the:

Accepted Answer

The statement best reflects the concept of limited and bundled choices, as representatives must vote on the entire appropriations bill, including both good and bad aspects. This limits their ability to make specific choices and forces them to accept bundled options.

Question 4

Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to self-prepare their own wills,trusts,and other legal documents.This is an example of:

Accepted Answer

Rent-seeking behavior refers to the seeking of economic gain through political means, such as lobbying for legislation that limits competition. This scenario describes lawyers seeking legislation to limit competition from computer software that enables self-preparation of legal documents, which is a form of rent-seeking behavior.

Question 5

Regulatory capture often occurs because of which of the following?

Accepted Answer

Regulatory capture occurs when the regulatory agency that is supposed to oversee a specific industry is ultimately influenced in favor of the industry it is regulating. This often occurs when those with expertise in the industry end up working in the regulatory agency, leading to a conflict of interest. As a result, the agency may make decisions that benefit the industry it is regulating rather than protecting consumers or the public interest.

Question 6

Deregulation:

Accepted Answer

Deregulation can increase competition and eliminate regulatory capture, leading to improved outcomes. However, it may not be appropriate for industries generating substantial negative externalities or for government agencies responsible for human safety, environmental protection, and financial regulation. While deregulation can lead to greater economic efficiency, it is not always guaranteed.

Question 7

Which of the following would be the best example of regulatory capture?

Accepted Answer

Regulatory capture refers to a situation where regulated industries or companies end up controlling the regulatory agency meant to oversee them. In this case, executives from the Ford, General Motors, and Chrysler companies writing rules regulating automobile safety and fuel requirements is an example of regulatory capture. These companies have a vested interest in protecting their profits and may write rules that disproportionately favor themselves or hinder their competitors.

Question 8

Which of the following will tend to socialize losses and privatize gains?

Accepted Answer

When the government guarantees that private investors will get their money back even if a company fails, it socializes losses because the government is ultimately responsible for covering those losses. At the same time, it privatizes gains because the investors are able to keep any profits they made from their investment.

Question 9

The field of economics that analyzes government decision making,politics,and elections is called:

Accepted Answer

Public choice theory is a subfield of economics that analyzes government decision making, politics, and elections. It focuses on the behavior of individuals, groups, and institutions involved in the decision-making process of public policies. The other options, public finance and collective economics, tend to focus more on the study of the government's role in the economy, while political economy studies the interaction between politics and the economy more broadly.

Question 10

According to some economists,the private sector is more efficient than the public sector mainly because:

Accepted Answer

The private sector is driven by profit and loss, meaning that companies must be efficient and effective in order to maximize profits and avoid losses. This clear test of performance provides motivation for companies in the private sector to be more efficient than the public sector, which does not have the same profit-based motivation.

Question 11

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

Accepted Answer

Political corruption involves the misuse of public office or resources for personal gain. Therefore, the unlawful misdirection of governmental resources for personal gain aligns with this definition.

Question 12

Under what circumstances would government loan guarantees be socially beneficial?

Accepted Answer

Government loan guarantees can be socially beneficial when they encourage the production of goods that have positive externalities or are public goods, which are typically underproduced by the private sector due to their inability to capture all the benefits of production. This can lead to a more efficient allocation of resources and greater social welfare.

Question 13

What is the main problem with government guarantees that socialize losses and privatize gains?

Accepted Answer

When government guarantees socialize losses and privatize gains, it creates a moral hazard problem where private investors will take on riskier investments because any losses will be borne by the government while all gains will accrue to them. This can lead to excessive risk-taking and ultimately financial instability.

Question 14

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

Accepted Answer

Regulatory capture occurs when the regulatory body responsible for overseeing an industry ends up being influenced by the industry itself, resulting in regulations that serve the private interests of the industry rather than the public interest. This can result in inadequate protections for consumers, employees, and the environment, which can have negative social and economic consequences.

Question 15

Government loan guarantees tend to have the effect of:

Accepted Answer

Government loan guarantees often shift the risk from private lenders to the government, thereby socializing losses. However, if the borrower is successful and pays back the loan with interest, the gains are often kept by the private lender rather than being shared with the government or taxpayers, thereby privatizing gains.

Question 16

The Road Runner Club contributes money to Senator Sly's reelection campaign fund,and Senator Sly helps pass legislation to add more jogging paths across the state.From this we can definitively conclude:

Accepted Answer

The information given does not necessarily imply corruption, logrolling, or a principal-agent problem. It's possible the Road Runner Club donated to Senator Sly because he already supported the addition of jogging paths, indicating a shared interest rather than a corrupt exchange.

Question 17

Regulatory capture is said to have occurred when which of the following is true?

Accepted Answer

Regulatory capture occurs when the rules and enforcement of an industry are heavily influenced by the industry being regulated, resulting in a lack of effective regulation to protect the public interest.

Question 18

In a sporting goods store,you can buy the equipment you want and forgo the rest.But in an election you "buy" the entire range of the candidate's positions,including some you may not agree with.This difference:

Accepted Answer

This difference reflects limited and bundled choices in the public sector because, unlike in a market where you can select individual items (unbundled choices), in an election, you must choose a candidate as a whole package (bundled choices), accepting both the positions you agree and disagree with.

Question 19

Public choice economists:

Accepted Answer

Public choice economists use economic analysis to study how public policy decisions are made and how they affect society. They focus on decision-making processes in the government and in other non-market institutions, such as interest groups and political parties. They do not necessarily work for governments themselves.

Question 20

Political corruption occurs whenever:

Accepted Answer

Political corruption occurs when government officials abuse their power for personal gain, including using public resources unlawfully. This includes bribery, embezzlement, and other forms of dishonest behavior by those in positions of power. Logrolling, special interest group contributions, and pork barrel politics may all contribute to political corruption but are not the only indicators of corrupt behavior.

Quiz 5: Governments Role and Government Failure