Deck 20: Political Economy and Public Choice

Question 1

Which of the following statements is FALSE?

A) Economists support free and competitive markets.
B) Economists are skeptical about price controls and tariffs.
C) Economists favor command and control regulation.
D) Economists oppose super-high inflation rates.

Answer 1

C

Question 2

Which of the following is the smallest part of the United States budget?

A) defense
B) interest on the federal debt
C) foreign aid
D) welfare

Answer 2

C

Question 3

Which of the following is an example of rational ignorance?

A) Glenda chooses to purchase a new CD at the store 1 mile from her home instead of driving all over town to see if she can find a lower price.
B) Bob chooses not to vote since his vote will never swing the outcome of an election.
C) ABC Corporation chooses to hire local workers instead of outsourcing jobs to another country.
D) Jane decides not to study for her test tomorrow even though studying could raise her grade significantly.

Answer 3

A

Question 4

An abstract from a recent economics paper reads as follows:
We explore whether presidential and congressional influences affect the rate of disaster declaration and the allocation of FEMA (Federal Emergency Management Agency) disaster expenditures across states. We find that states politically important to the president have a higher rate of disaster declaration by the president (which is necessary to receive FEMA funding).
This research is an example of

A) political economics.
B) civil reasoning.
C) public choice.
D) myopic rationality.

Question 5

Of the following, which is the smallest part of the United States budget?

A) defense
B) interest on the federal debt
C) Social Security
D) welfare

Question 6

Which of the following is the largest part of the United States budget?

A) defense
B) interest on the federal debt
C) foreign aid
D) welfare

Question 7

The incentive to inform oneself before an election is:

A) high because every vote counts, especially in a democracy.
B) high because it's important for a civil society to be civically engaged.
C) low because one's own vote has virtually no chance of affecting the outcome of an election.
D) high because the outcome of an election has lasting consequences.

Question 8

In 2010, an unemployed United States Army veteran named Alvin Greene won the Democratic primary for the South Carolina Senate race. At the time of his victory, Greene had raised no money, had done no visible campaigning, had no Web site, and had not attended the state party's convention. There is no evidence of fraud. Two explanations for his victory involve his name: (1) Greene is a popular last name among African Americans, which encouraged African-American voters to support him at the ballot; and (2) Greene's name appeared above his opponent's name, Vic Rawl, which encouraged voters uninformed about either candidate to vote for Greene. How does Greene's victory illustrate rational ignorance?

A) Greene did not make it easy for them to learn about him.
B) Voters supported the candidate that they knew the least about.
C) Voters had little incentive to learn about either candidate.
D) Voters strongly empathize with an Army veteran though that has little to do with being a Senator.

Question 9

A woman approached Senator Adlai Stevenson when he was running for president, saying, "Senator, you have the vote of every thinking person!" The Senator is often credited with responding: "That's not enough, madam, we need a majority!" Which concept does this quip best reflect?

A) rational ignorance
B) opportunity cost
C) diffuse costs and concentrated benefits
D) median voter theorem

Question 10

Public choice is a field of study that:

A) looks at the consumption choices made by people who are near retirement.
B) uses economic tools to examine political behavior.
C) uses mathematics and statistics to infer relationships between two or more variables of public interest.
D) analyzes trends in population growth and other structural changes in the population.

Question 11

Rational ignorance is when:

A) full information is not available.
B) the benefit of becoming fully informed is lower than the cost.
C) the cost of information is low.
D) there is no benefit to gathering additional information.

Question 12

Of the following, which is the largest part of the United States budget?

A) foreign aid
B) interest on the federal debt
C) Social Security
D) welfare

Question 13

Arguably, one of the best ways to explain why Americans seemingly know very little about current government policies or the state of the economy is that:

A) the quality of American education is poor.
B) this information is not readily available to the general public.
C) the time and resources it costs to attain and process this information is more than the benefit received from having this information.
D) people are irrationally ignorant.

Question 14

If the benefits of informing oneself are greater than the costs, then ignorance is

A) rational.
B) irrational.
C) not beneficial.
D) not costly.

Question 15

What is a reason why markets should be free and unregulated?

A) bad incentives
B) some people ignore ethical values in making market decisions
C) politicians' election agendas
D) good incentives

Question 16

Ignorance is

A) rational only in extreme cases.
B) never rational.
C) always rational.
D) sometimes rational.

Question 17

Why do some voters choose to be rationally ignorant?

A) The cost of informing themselves about candidates and policies are greater than the benefits.
B) They get distracted with life and never get around to searching for the relevant information.
C) Their parents and peers largely influence voter's preferences.
D) Reduced public school funding has meant less money spent on teaching civic classes.

Question 18

Which of the following government programs is the largest in terms of spending?

A) health care
B) defense
C) foreign aid
D) welfare

Question 19

Public choice is the study of:

A) how choices are made without economic theory.
B) how the general public is affected by government policies.
C) irrational behavior of individuals.
D) political behavior in the context of economics.

Question 20

In The Distinguished Gentleman, Eddie Murphy plays a con man with a similar name as a long-running Congressman. When the politician dies, Murphy runs for office using the politician's name: Jeff Johnson. He's careful not to go on camera but uses taglines in commercials such as "Johnson: The name you trust." He eventually achieves a slim victory. How does Murphy's character use voter ignorance to win the election? (Hint: The answer is only slightly different than the way most politicians use voter ignorance to win elections.)

A) He's expecting most voters not to know their congressman died.
B) He's expecting most voters not to investigate him too much.
C) He's expecting that most people won't remember his campaign promises.
D) He's expecting most voters to neither investigate him too much, or to know that their congressman died.

Question 21

People who spend more time and effort investigating the advantages and disadvantages of different flat-screen televisions when they go to purchase one than they do investigating the strengths and weaknesses of presidential candidates are saying, in effect, that:

A) they do not think it matters who is elected president.
B) they are irrational, because the choice of a president is obviously far more important than the choice of a TV.
C) a good TV is more important to their well-being than a good president.
D) they expect to use the information on the merits of alternative TVs to greater personal advantage than they could information on the merits of alternative presidential candidates.

Question 22

Rational ignorance can not be seen in which of the following scenarios?

A) A student has a final exam in exactly three hours. He knows from past experience that without at least some sleep he will be useless on the exam. In spite of the fact that he still has four chapters to read for the exam, he decides to sleep for 2.5 hours.
B) You are a worker looking for work in a recessionary environment. You get a phone interview after which you are offered a job and have to start the next day. To secure a paycheck, you accept without doing any further research on the company.
C) You have to fly urgently. You buy the first ticket available and it is expensive, but you pay anyway because you do not have time to research other flights.
D) You have to fly urgently; however, you do extensive research for over an hour to find the best deal.

Question 23

The two largest sources of government spending are:

A) defense and foreign aid.
B) welfare and foreign aid.
C) interest on debt and Social Security.
D) defense and Social Security.

Question 24

Why do you think voters choose to be rationally ignorant even when it is time to elect a new president?
I. Voters are not presented with enough information to make a rational decision.
II. Voters often believe that their vote does not make any difference in the political process.
III. The process of understanding the electorate system, the candidates' platforms, and critically assessing the candidates' policies takes up more of the voter's time than it is worth.

A) I only
B) II only
C) II and III only
D) I, II, and III

Question 25

Let's check on whether you are rationally ignorant. Which of the following four items is the smallest in terms of government expenditure?

A) Social Security
B) welfare
C) foreign aid
D) health care

Question 26

If the costs of informing oneself are greater than the benefits, then ignorance is

A) rational.
B) irrational.
C) not beneficial.
D) not costly.

Question 27

Rational ignorance refers to the:

A) lack of incentive voters have to become well informed about candidates and issues because their vote is unlikely to affect the outcome of an election.
B) problem of not enough information being supplied to voters because politicians are not spending enough on campaign adds to inform voters of their positions on issues.
C) fact that most people choose to become just as well informed when making choices as consumers as they do when making choices as voters.
D) lack of rational analysis on the part of voters when they choose not to become informed about candidates and issues even though this knowledge would produce great personal benefit to them.

Question 28

Which of the following best explains the term rational ignorance?

A) It is the decision to search for and acquire information only if there is enough time.
B) It is the decision to stay uninformed on certain topics because of the prohibitive cost of gathering information.
C) It is the decision to ignore free information that is vital in making the correct decision.
D) It is the rational weighing of costs versus benefits.

Question 29

Which of the following would be the most likely outcome if a college professor awards grades based on average test scores and assigns the same grade to everyone in the class?

A) Students will collaborate to get a better grade and achieve higher payoff.
B) Students will study more because studying has a higher payoff.
C) Students will study less because studying has a lower payoff.
D) Students will study the same amount as they did before because their scores will still impact the average score.

Question 30

Rational ignorance in voting comes from:

A) externalities that lead to an excess supply of information.
B) the limited incentive of the news media to cover political campaigns.
C) the expectation of individual voters that their vote will not be decisive.
D) the lack of a college education on the part of most voters in the United States.

Question 31

It is rational to be ignorant when:

A) the benefits of the information outweigh the costs of acquiring the information.
B) the costs of becoming informed are greater than the benefits of being informed.
C) you have limited mental capacity.
D) dollars or profits do not matter.

Question 32

According to the text, popular surveys about government programs show evidence that the majority of American voters are:

A) perfectly rational.
B) irrational.
C) rationally ignorant.
D) well informed about all government programs.

Question 33

Rational ignorance occurs when people are not knowledgeable of something because:

A) those people have no incentives to learn anything.
B) the benefits of being informed are less than the cost of becoming informed.
C) they are simply irrational.
D) they are self-centered and lack the ability to learn.

Question 34

The government spends more on foreign aid than:

A) health care.
B) welfare.
C) Social Security.
D) None of the answers is correct.

Question 35

Which of the following statements seems to be that of a rationally ignorant person?

A) I am not sure which of the soups are more nutritious and I'm in a hurry, so I will opt for the one with more vegetables in it.
B) I always compare prices and buy the good at the store where it has been priced the cheapest.
C) I don't know much about the candidates' views on defense, but he has better charisma than she does and so I will vote for him.
D) The male candidate has a much softer defense strategy than the female candidate so I have decided to vote for her.

Question 36

According to public choice theory, people do not always make informed choices because:

A) the incentives to become informed are low as compared with the costs of being informed.
B) they are ignorant by nature.
C) they are irrational, so their decisions are not predictable.
D) they believe making informed choices are the tasks only for the government.

Question 37

Let's check on whether you are rationally ignorant. Which of the following four items is the biggest expenditure in the federal government's budget?

A) Social Security
B) welfare
C) foreign aid
D) health care

Question 38

Most voters will tend to be concerned with:

A) most issues since most issues have some impact, however slight, on each citizen.
B) most issues since information on most issues can be obtained at a low cost.
C) only a few special issues (those that have the most impact on the voters' personal welfare).
D) the views of a particular political candidate on all issues.

Question 39

In which of the following decisions is a person likely to be rationally ignorant?

A) deciding which car to buy
B) deciding where to live
C) deciding which mayoral candidate to vote for
D) deciding which television show to watch

Question 40

Let's check on whether you are rationally ignorant. Which of the following four items is the biggest in terms of government expenditure?

A) defense
B) welfare
C) foreign aid
D) health care

Question 41

Which of the following is most likely the result of rational ignorance?

A) Democrats get elected more often than Republicans.
B) Older people tend to vote more often than younger people.
C) Better-looking candidates tend to get more votes.
D) More candidates tend to enter the political race when there is not an incumbent running.

Question 42

Special interest groups have an incentive to be:

A) rationally ignorant.
B) rationally informed.
C) free riders.
D) forced riders.

Question 43

Which of the following statements is TRUE?
I. Sugar consumers pay higher prices because of sugar quotas, a sufficient incentive for them to campaign against politicians that favor quotas.
II. Sugar producers know more about sugar quotas than do sugar consumers because the quota system has a large effect on sugar industry profits.
III. When it comes to sugar trade policy, sugar producers are rationally informed and sugar consumers are rationally ignorant.

A) II and III only
B) I and II only
C) I, II, and III
D) I only

Question 44

Which of the following statements is TRUE?
I. Rationally ignorant people may favor price controls because they receive biased information.
II. Rational ignorance may lead voters to have mistaken beliefs about the state of the economy.
III. Rationally informed people can take advantage of the rationally ignorant by supporting policies that transfer wealth from the ignorant to the informed.

A) I, II, and III
B) I and II only
C) II and III only
D) I only

Question 45

The United States federal government ______ the amount of sugar entering the country.

A) increases
B) does not influence
C) reduces
D) does not track

Question 46

Suppose the government is considering a proposal for a new chicken subsidy. Growers of chickens stand to gain approximately $25 million in government funds over the next year if the proposal passes. The money, however, will come from increased taxes on consumers of chicken (a new "chicken tax"). If there are approximately 100 million consumers in the chicken market each year, how much would each be willing to spend, on average, to contest the chicken tax?

A) $25 million
B) $100
C) $25
D) $0.25

Question 47

Studying politics doesn't pay because the outcome:

A) of any election is mostly determined by what other people do, not by what you do.
B) of any election is mostly determined by what you do, not by what other people do.
C) of any election is always inconsistent with the expectation.
D) of any election can be manipulated by politicians.

Question 48

Which of the following programs are the two largest sources of the United States government budget?

A) welfare and foreign aid
B) defense and interest on the federal debt
C) health care and Social Security
D) defense and Social Security

Question 49

Sugar quotas:

A) are not an issue in the United States despite rationally ignorant voters.
B) harm United States sugar farmers at the benefit of the candy and soda industry.
C) cost the typical family about $6 per year but provide millions of dollars of benefits to Florida sugar producers.
D) lead to lower prices and increased output, and thus are opposed by the sugar industry.

Question 50

Ignorance is rational when the benefits of being informed are:

A) greater than the costs of becoming informed.
B) less than the costs of becoming informed.
C) equal to the costs of becoming informed.
D) likely to be quite large but information is costless.

Question 51

Which of the following statements is TRUE?

A) Rational ignorance exists only in politics.
B) Rational ignorance still leads to an efficient outcome.
C) It never makes sense for individuals to be rationally ignorant.
D) Rational ignorance is bad because it leads to uninformed voters making decisions.

Question 52

The Fanjul brothers are:

A) both Democrats.
B) a Democrat and a Republican.
C) both Republicans.
D) both registered as Independents.

Question 53

In September 2009, President Obama placed high tariffs on imported tires from China. Why did the President do this?

A) Because reducing imports from China will make America more prosperous.
B) The costs of the tariffs will be small compared with the benefits of saving American jobs.
C) Because tariffs will lower tire prices, which is especially important with the high unemployment at the time.
D) Although the policy harms the consumers of tires, the policy directly benefited the United Steelworkers, a special interest group that provides political support to the Democratic Party, of which President Obama is a member.

Question 54

Economists say that voters are rationally ignorant about politics because:

A) the procedure of learning politics is too cumbersome.
B) politics is too complicated.
C) the opportunity cost of studying politics is too high.
D) the incentives to be fully informed are low.

Question 55

Which of the following is NOT the reason why ignorance about political matters is important?

A) It is difficult for voters to make informed choices if they are not well informed.
B) Voters who are rationally ignorant will often make decisions for irrational reasons.
C) Voters who are well informed would perceive politics as entertainment.
D) Rational ignorance matters because not everyone is rationally ignorant.

Question 56

Rational ignorance:

A) makes it difficult for voters to make informed decisions regarding government intervention in the economy.
B) may cause voters to give credit to or blame politicians for things not under their control.
C) may allow special interest groups to take advantage of the uninformed.
D) All of these possibilities are correct.

Question 57

Why is rational ignorance important from an economic standpoint?
I. Voters might not make informed choices.
II. Voters will make decisions based on incorrect or incomplete information.
III. Special interest groups may control economic outcomes if they are the only ones who are not rationally ignorant.

A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question 58

Ignorance about political matters is important for the economy for each of the following reasons, except:

A) ignorance makes it easier for special interest groups to affect government policy outcomes.
B) ignorance makes it difficult for voters to make informed economic decisions.
C) rationally ignorant voters tend to make economic decisions on the basis of poor or biased information.
D) everyone is rationally ignorant so that no one in society will make appropriate economic decisions.

Question 59

The Fanjuls are:

A) sugar barons who give considerable money to politicians who make decisions on sugar quotas.
B) a consumer advocacy group attempting to ban special interest groups.
C) a new political party based on the opposition to special interest politics.
D) free traders who propose doing away with all tariffs.

Question 60

Why are special interest groups so powerful?

A) Because voters are rationally ignorant about how laws designed to help special interest groups are harmful to everyone else.
B) Because special interest groups have a self-interest in passing favorable legislation-they stand to gain millions of dollars, while each taxpayer loses only several dollars.
C) Neither A nor B is correct.
D) Both A and B are correct.

Question 61

The political power of farmers ________ as the share of farmers in the population decreased, because the benefits from farm subsidies became ________ concentrated.

A) increased; less
B) increased; more
C) decreased; less
D) decreased; more

Question 62

The key formula for political success behind the sugar quota is:

A) diffused costs and concentrated benefits.
B) diffused benefits and concentrated costs.
C) diffused costs and diffused benefits.
D) concentrated costs and concentrated benefits.

Question 63

With respect to the sugar quota, the people who are harmed are _____ and the people who benefit are _____.

A) rationally informed; rationally ignorant
B) rationally informed; irrationally ignorant
C) rationally ignorant; rationally informed
D) rationally ignorant; irrationally informed

Question 64

The diffusion of costs and concentration of benefits:
I. leads to rational ignorance on the part of voters.
II. is the formula to which the sugar quota owes its existence.
III. is a formula for reelection to political office.

A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question 65

The "Bridge to Nowhere":

A) cost the local community about $35,000 per person.
B) is a special case in which special interests can maximize society's well-being.
C) would have created large external costs, an example of the inefficient projects proposed by self-interested politicians.
D) connects Cuba to Key West, Florida.

Question 66

As part of the American Recovery and Reinvestment Act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 Nebraska town residents wouldn't have to wait for the trains to pass. Which of the following best explains why this proposal was passed?

A) The benefits were highly diffused while the costs were very concentrated.
B) The costs were highly diffused while the benefits were very concentrated.
C) The costs were external while the benefits were internal.
D) The total benefit to the bridge was greater than the total cost.

Question 67

Which of the following explains why the sugar quota is a winning policy for politicians?

A) The people who are harmed by the quota are rationally ignorant.
B) The people who are harmed by the quota have strong incentive to oppose the policy.
C) The people who benefit from the quota are rationally ignorant.
D) The people who benefit from the quota are too small in number to influence the outcome of elections.

Question 68

Which of the following explains why the sugar quota is a winning policy for politicians?

A) The people who are harmed by the quota are rationally informed.
B) The people who are harmed by the quota have strong incentive to oppose the policy.
C) The people who benefit from the quota are rationally ignorant.
D) The people who benefit from the quota have strong incentive to support the policy.

Question 69

Which of the following statements is NOT true about the sugar quota imposed by the United States government?

A) Although sugar consumers are harmed by the quota, few of them even know of the quota's existence.
B) Sugar consumers wouldn't spend much time or effort to oppose the sugar quota even if they know about the quota.
C) Sugar producers are rationally informed and would seek to sustain the quota.
D) The quota is imposed to protect both sugar consumers and producers.

Question 70

One way to achieve political success is to:

A) concentrate costs and diffuse benefits.
B) concentrate benefits and costs.
C) concentrate benefits and diffuse costs.
D) diffuse costs and benefits.

Question 71

Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is TRUE?

A) Policy A will not become law because it hurts more people than it helps.
B) Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people.
C) Policy A is likely to be supported by politicians even though it makes society worse off.
D) Because Policy A negatively affects many people, rational ignorance will not be a problem.

Question 72

Special interest groups have a large incentive to be ________ about legislation that benefits them directly, whereas voters tend to be ________ regarding these issues.

A) rationally informed; irrationally informed.
B) rationally ignorant; irrationally ignorant.
C) rationally informed; rationally ignorant.
D) irrationally informed; rationally ignorant.

Question 73

Which of the following public policies does NOT fit the diffused costs and concentrated benefits story?

A) agricultural subsidies
B) minimum wage
C) price supports
D) trade quota and tariffs

Question 74

Which of the following best explains why special interest groups maintain so much power in the United States political process?

A) Special interest groups typically represent the largest United States companies, so get a lot of media attention.
B) Special interest groups stand to gain millions if particular laws are passed and lobby very hard for them; whereas voters stand to lose only a little and don't find opposing them worth their effort.
C) Both special interest groups as well as voters lobby politicians hard regarding certain legislation, however special interest groups typically win out because they have more money.
D) Special interest groups have been powerful in the past because of their ties to wealth; however, their power has been dwindling in recent years.

Question 75

Which of the following provides the most reasonable explanation for why agricultural interests lobby for higher farm subsidies and price supports?

A) Agricultural interests seek a redistribution of income favoring themselves.
B) Price support programs reduce food costs, which helps the poor.
C) Subsidies promote the efficient use of agricultural resources.
D) Without the farm subsidies, food shortages would result.

Question 76

The primary policy affecting the United States sugar market is a(n):

A) import quota.
B) subsidy.
C) local content requirement.
D) tariff.

Question 77

An issue that generates substantial benefits to a small group of individuals while imposing a small cost on many others is called a:

A) nonissue.
B) special-interest issue.
C) popular issue.
D) minority issue.

Question 78

The costs of many government projects (such as bridges, roads, and museums) create:

A) external costs because taxpayers around the country pay for the construction.
B) internal costs because taxpayers around the country pay for the construction.
C) internal benefits because all taxpayers benefit from the construction.
D) external benefits because taxpayers around the country benefit from the construction.

Question 79

In the public sector, politicians:

A) pursue primarily the general public interest since competition is less intense in the public sector.
B) pursue primarily the general public interest since they are concerned mostly with the collective good.
C) act in the narrow self-interest of their constituents and contributors to remain in office.
D) respond to the broader active political interests even though they choose to be rationally ignorant.

Question 80

Who will likely have the most incentive to be rationally informed about the effect of government policy on the price of sugar?

A) sugar consumers
B) sugar producers
C) the President of the United States
D) taxpayers