Deck 9: Political Economy

Question 1

Suppose Dexter and Amy are the only members of a community that is trying to determine how much of the public good should be produced.Dexter's (inverse)demand curve is given by P = 50 - 5Q,while Amy's (inverse)demand curve is given by P = 150 - 15Q,where P is price or marginal benefit and Q is the quantity of the good.The marginal cost of producing the public good is constant at $80.Setting aggregate marginal benefit equal to marginal cost leads to the conclusion that the efficient quantity of the public good is equal to:

A)2
B)6
C)10
D)80.

Answer 1

6

Question 2

Which of the following are problems that must be overcome to achieve the Lindahl solution?

A) Individuals tend to overreport their valuation of a public good.
B) Individuals may not know their valuation of a public good.
C) Individual values cannot be aggregated into a social value.
D) Individuals demand larger quantities of a public good when their tax shares increase.

Answer 2

Individuals may not know their valuation of a public good.

Question 3

Which of the following are problems that must be overcome to achieve the Lindahl solution?

A) Individuals always tell the truth about their willingness to pay.
B) Individuals tend to overreport their valuation of a public good.
C) Individuals tend to underreport their valuation of a public good.
D) The tax system may be inefficient.

Answer 3

Individuals tend to underreport their valuation of a public good.

Question 4

Pam and Kunal are the only members of a community that is trying to determine how much of the public good should be produced.Suppose that Pam is willing to pay $10 for the fourth unit of the public good and that Kunal is willing to pay $6 for the fourth unit.The marginal cost of producing the public good is constant at $4.Which of the following is TRUE?

A) Fewer than four units of the public good should be produced.
B) More than four units of the public good should be produced.
C) Exactly four units of the public good should be produced.
D) The Lindahl equilibrium is established when the price of the public good is $10.

Question 5

The condition for equilibrium in the Lindahl model requires that:

A) only those with strong preferences participate in democratic elections.
B) each voter accepts an equal share of the overall tax burden.
C) each voter selects the same quantity at the announced set of prices.
D) each voter's marginal benefit function is the same.

Question 6

Suppose Dexter and Amy are the only members of a community that is trying to determine how much of the public good should be produced.Dexter's (inverse)demand curve is given by P = 50 - 5Q,while Amy's (inverse)demand curve is given by P = 150 - 15Q,where P is price or marginal benefit and Q is the quantity of the good.The marginal cost of producing the public good is constant at $80.Dexter will vote for the efficient quantity of the public good if the price to him is:

A) $20.
B) $40.
C) $60.
D) $80.

Question 7

Which of the following is a ballot measure that allows citizens to vote on state laws or constitutional amendments that have already been passed by the state legislature?

A) recall
B) referendum
C) voter initiative
D) arrow vote

Question 8

The property of transitivity refers to which of the following?

A) If voters for one choice feel more strongly than do voters who select another choice,then the aggregation mechanism must be such that the choices are weighted accordingly.
B) If one choice is preferred by all voters,then the aggregation mechanism must be such that this choice is made by society.
C) If choice A is preferred to choice B and choice B is preferred to choice C,then A must be preferred to C.
D) Choices must satisfy the condition that if one choice is preferred to another,then the introduction of a third choice will not change that ranking.

Question 9

Pam and Kunal are the only members of a community that is trying to determine how much of the public good should be produced.Suppose that Pam is willing to pay $10 for the fourth unit of the public good,while Kunal is willing to pay $3 for it.What is the community's marginal willingness to pay for the fourth unit of the public good?

A) $3
B) $4
C) $10
D) $13

Question 10

Federal spending for local projects that serve mostly to transfer federal dollars to politician's constituents is defined as:

A) direct democracy.
B) political pork.
C) marginal-cost pricing.
D) Lindahl pricing.

Question 11

Which of the following is legislation or a constitutional amendment that citizens place on the ballot?

A) recall
B) referendum
C) voter initiative
D) arrow vote

Question 12

A voting system characterized by the dominance property,the property of transitivity,and independence of irrelevant alternatives would lead to:

A) a violation of Arrow's Impossibility Theorem.
B) a dictatorship.
C) inconsistent aggregation of individual preferences.
D) consistent aggregation of individual preferences.

Question 13

Which of the following is a system by which individuals report their willingness to pay for the next incremental unit of a public good and the government charges them that amount to finance this public good?

A) access pricing
B) voter initiative
C) Lindahl pricing
D) referendum

Question 14

Suppose Dexter and Amy are the only members of a community that is trying to determine how much of the public good should be produced.Dexter's (inverse)demand curve is given by P = 50 - 5Q,while Amy's (inverse)demand curve is given by P = 150 - 15Q,where P is price or marginal benefit and Q is the quantity of the good.The marginal cost of producing the public good is constant at $80.Amy will vote for the efficient quantity of the public good if the price to her is:

A) $20.
B) $40.
C) $60.
D) $80.

Question 15

In a Lindahl equilibrium:

A) no one could be made better off by reducing his or her tax burden,all things equal.
B) most but not all individuals are happy to pay their taxes to receive the benefits.
C) the government must subsidize the project by using nontax financing schemes.
D) everyone is willing to pay the taxes to receive the benefits.

Question 16

Which of the following refers to taxing individuals for a public good according to their valuation of the benefit they receive from the good?

A) efficient-cost taxation
B) benefit taxation
C) median voter taxation
D) mean voter taxation

Question 17

Which of the following refers to the property of dominance?

A) If voters for one choice feel more strongly than do voters for another choice,then the aggregation mechanism must be such that the choices are weighted accordingly.
B) If one choice is preferred by all voters,then the aggregation mechanism must be such that this choice is made by society.
C) If choice A is preferred to choice B and choice B is preferred to choice C,then A must be preferred to C.
D) Choices must satisfy the condition that if one choice is preferred to another,then the introduction of a third choice will not change that ranking.

Question 18

Majority voting is:

A) always consistent.
B) sometimes inconsistent.
C) a preference disaggregation mechanism.
D) rarely used in political decision making.

Question 19

Which statement about direct democracy in the United States is NOT true?

A) The important feature of a referendum is that it is designed to elicit constituents' reactions to legislation.
B) At the local level,the town meeting remains an important venue for decision making in many southern states.
C) Voter initiative is widely used in the United States,especially in West Coast states.
D) Referenda and initiatives are used for all kinds of issues,including but not limited to election rules,alcohol rules,animal rights,and so on.

Question 20

Which of the following terms defines a preference aggregation mechanism that satisfies the properties of dominance,transitivity,and independence of irrelevant alternatives?

A) socially efficient
B) socially inefficient
C) inconsistent
D) consistent

Question 21

Suppose a state has two senators; one is a Republican and the other is a Democrat.The median voter model predicts that:

A) both will vote like members of their own party from other states,which is consistent with empirical voting records.
B) both will vote like members of their own party from other states,which is inconsistent with empirical voting records.
C) each will vote the same way as the other,which is consistent with empirical voting records.
D) each will vote the same way as the other,which is inconsistent with empirical voting records.

Question 22

In the town of New Era,Mary,Scott,and Fredo are all running for the same spot on the village council.New Era residents care only about infrastructure improvements; they know everything about the candidates' positions on that issue but know nothing about their positions on policing.Which of the following assumptions of the median voter model is being violated?

A) full information
B) voter rationality
C) the existence of only two candidates
D) single-dimensional voting

Question 23

Which of the following is NOT true about farm policy in United States?

A) Government support to farmers is in two forms: direct subsidy and price supports.
B) Farmers growing only 20 of 400 types of crops are eligible for these direct subsidies and price supports.
C) The amount of subsidy increases with the amount of crop produced,so larger farms benefit more from the subsidies than do small farms.
D) The price supports decrease the average price of food products for American consumers.

Question 24

Suppose that there are 1,000 voters in your city.A total of 400 are willing to pay up to $25 each for the construction of a park,and the other 600 are willing to pay only $10.The construction of the park will cost $12,000.Someone proposes a vote on whether to tax each citizen $12 in order to finance the park.
(a)What will be the result according to the median voter model? Is this result socially efficient? Explain.
(b)What if instead of being willing to pay up to $25 each,the 400 residents were willing to pay up to $50 each?

Question 25

Which of the following is TRUE of median voter outcomes?

A) They are socially efficient.
B) They are never socially efficient.
C) They do not reflect the intensity of voters' preferences.
D) They are the same outcomes that would prevail without government intervention.

Question 26

How can a voting model avoid the result of Arrow's Impossibility Theorem?

A) impose restrictions on preferences
B) remove the irrational voters
C) prohibit a dictatorship
D) allow individuals to vote according to their personal preferences

Question 27

Suppose you hear that the U.S.Department of Agriculture is more interested in preserving itself than in achieving its designated mission.That statement is consistent with:

A) goods being provided more efficiently by the private sector than by the public sector.
B) government corruption.
C) the political business cycle.
D) size-maximizing bureaucracy.

Question 28

To Charlie,the marginal benefit (MB)of national defense is MB = 4,500 - 90Q,where Q measures units of national defense.Sally's marginal benefit is MB = 3,000 - 60Q.The marginal cost of providing national defense is constant and equal to $2,700.Calculate the efficient quantity of national defense.Graph aggregate MB and MC to illustrate the efficient quantity of national defense (label functions and include all relevant values in the graph).Assume policymakers are able to choose the efficient level of national defense because they know each voter's marginal benefit function.If tax shares are set to force each person to pay exactly what they think national defense is worth at the optimal level,what is Charlie's tax share and what is Sally's tax share?

Question 29

According to the median voter model,which of the following must a politician know in order to attract the maximum number of votes?

A) the preferences of all voters
B) the preferences of the median voter
C) voters' willingness to pay
D) the issue that is most important to all voters

Question 30

The property of the independence of irrelevant alternatives refers to which of the following?

A) If voters for one choice feel more strongly than do voters for another choice,then the aggregation mechanism must be such that the choices are weighted accordingly.
B) If one choice is preferred by all voters,then the aggregation mechanism must be such that this choice is made by society.
C) If choice A is preferred to choice B and choice B is preferred to choice C,then A must be preferred to C.
D) Choices must satisfy the condition that if one choice is preferred to another,then the introduction of a third choice will not change that ranking.

Question 31

Which of the following is necessary for the Median Voter Theorem?

A) single-peaked preferences
B) double-peaked preferences
C) identical preferences for all voters
D) unknown preferences.

Question 32

Suppose that a local elected official gives noncompetitive grants to businesses owned by his relatives.This is consistent with:

A) goods being provided more efficiently by the private sector than by the public sector.
B) government corruption.
C) size-maximizing bureaucracy.
D) theft.

Question 33

There is an election with three candidates: Lady Left (LL),Carrie Central (CC),and Robert Right (RR).The following are the outcomes in various two- and three-way races:
CC,100%; RR,0%
LL,0%; CC,100%
RR,51%; LL,49%
RR,35%; LL,33%; CC,32%
The voting system is such that first there is a three-way race.Then,if none of the three candidates wins more than 50% of the votes,there is a two-way runoff election between the two candidates who won the most votes.
Is this voting system consistent? Explain which property of consistency is violated,if any.

Question 34

Suppose that three candidates are running for the same office.The only issues the population cares about are policing and criminal rehabilitation programs.There are three types of voters: the first group wants relatively little policing and lots of rehab; the second group wants medium amounts of both; the third group wants lots of policing and little rehab.The candidate with the highest number of votes wins,and the politicians care only about winning rather than about their personal ideology.Analyze how useful the median voter model will be in this case,specifically focusing on the number of issues in the race and the number of candidates who are running.What problems,if any,would these two things cause in terms of the median voter theory?

Question 35

Discuss the recent experiences of the U.S.defense industry in contracting out without competitive bidding.Are they successful ventures? What might be the fundamental problem in these contracts?

Question 36

The approach that emphasizes that government failures are often minimized by public finance economists is:

A) the Samuelson school.
B) public choice theory.
C) median voter theory.
D) bureaucratic theory.