Deck 6: The Economic Role of the State

Question 1

Insufficient _____ can make regulation counterproductive.

A)information
B)funding
C)monitoring
D)time

Answer 1

A

Question 2

Which of the following is not an institution used by government to secure rights?

A)The police.
B)The military.
C)The courts.
D)The copyright office.

Answer 2

D

Question 3

The political process can impede redistribution goals because _____.

A)there are more stingy voters than generous voters
B)there are more middle class voters than poor voters
C)there are more dumb voters than smart voters
D)there are more middle class politicians than poor politicians

Answer 3

B

Question 4

The government protects rights in a market economy by providing _____.

A)production
B)allocation
C)registration
D)courts

Question 5

Nabamitta is a doctor in a foreign country.When she first began medical school the number of doctors in her country was strictly limited by the government.Although the barriers to becoming a doctor were high,she invested nearly a decade of her life attempting to get a license because she knew if she received one she would be assured of a steady stream of patients.Soon after receiving a license,however,her country eliminated all barriers to entry in medical services.The result of the deregulation will likely be _____ for past license holders such as Nabamitta.

A)transitional gains
B)decreased competition
C)transitional losses
D)a new regulatory cartel

Question 6

Government regulation can improve economic efficiency if _____.

A)regulators encourage uncompetitive markets to act competitively
B)regulators have private information firms do not have
C)regulators are able to coordinate inter-industry actions to achieve efficiencies
D)regulators base their actions on the revealed preferences of market participants

Question 7

Jane is a dietician in a city that twenty years ago voted to restrict the number of dieticians in the city to five and to regulate their prices.Although the city has tripled in size during that time (and thus demand has increased),no new dietician licenses have been issued.Over the years Jane and the other license holders have begun offering a wide variety of perks to their clients to maintain market share.It is clear that the initial restriction on licenses gave Jane a _____.

A)monopoly
B)transitional gain
C)transitional loss
D)sense of security

Question 8

The optimal level of rights protection is _____.

A)zero
B)the marginal cost of additional protection equals the market price of the good
C)the marginal cost of additional protection equals the marginal benefit of the good
D)absolute

Question 9

Which of the following statements provides the best description of one reason why regulation of an industry might not increase economic efficiency?

A)There are more employees of regulated industries than affected customers.
B)Insufficient regulator pay makes it difficult to hire effective regulators.
C)The regulated industry has stronger incentives to be involved in the regulation process than the general public.
D)Regulated industries have too much economic power and can litigate away most regulation.

Question 10

Government price setting _____.

A)prevents firms from lowering their prices
B)creates barriers to entry
C)helps enforce collusion among industry members
D)all of the above

Question 11

Farmers receive a relative large amount of transfers per capita because _____.

A)farming is in decline
B)there are more farmers than any other interest group
C)agriculture is a national priority
D)farming is the dominant industry in most rural Congressional districts

Question 12

The equilibrium level of regulation is _____.

A)determined where marginal political gains to the special interests are equal to the marginal political costs of the foregone regulation
B)determined where the marginal benefits from the regulation are equal to the marginal costs of the regulation
C)determined where the marginal political benefits to the special interests are equal to zero
D)determined where the marginal benefits from the regulation are equal to zero

Question 13

Market exchange assumes that _____.

A)there are no monopolies
B)prisoner dilemmas are nonexistent
C)parties to the exchange have well-defined property rights
D)the public sector is failing its job

Question 14

Government regulation is best applied in cases_____.

A)where the marginal benefit of the regulation is greater than the cost of the bureaucracy
B)where imposed rules can increase efficiency more than govt.production would
C)where the marginal benefit of regulation improves the cost efficiency of the producers
D)where imposed rules can increase efficiency more than a public/private partnership would

Question 15

The transitional gains trap is a _____.

A)by-product of some types of regulation
B)associated with the move from a socialist to a market society
C)associated with the move from a communal to a socialist society
D)by-product of changing the rate at which capital gains are taxed

Question 16

In his classic treatise on public finance,Richard Musgrave says the economic activities of the state can be broken down into _____.

A)allocation,distribution,production
B)allocation,distribution,stabilization
C)allocation,production,protection
D)production,protection,allocation

Question 17

If regulations create barriers to entry in an industry,the result can be _____.

A)efficiency
B)monopoly
C)monopsony
D)higher output

Question 18

The fact that government has a monopoly on force _____.

A)means that government can protect individual rights but is strong enough to violate them
B)means that government can protect individuals rights yet is strong enough not to violate them
C)means that individuals have secure and well-defined property rights
D)means that individuals need not worry about threats from other governments

Question 19

The capture theory of regulation states that _____.

A)regulators act in the best interests of regulators
B)regulators act in the best interests of politicians
C)regulators act in the best interests of the general public
D)regulators act in the best interests of the regulated

Question 20

Government regulators know that pollution is a problem in Cleveland.However,information on the social cost of this externality is difficult to come by.Which of the following statements best describes how this information problem might manifest itself?

A)Well-intentioned regulators monitor a handful of polluting factors and are unable to determine how much they contribute to the problem.
B)Well-intentioned regulators decide to shut down the plants and start government production in state-of-the-art factories.
C)Well-intentioned regulators impose a collective tax that ends up reducing output beyond the optimal level of output.
D)Well-intentioned regulators fail to do anything because they are afraid of doing the wrong thing.

Question 21

Eminent domain _____.

A)is when government forces holdouts to sell
B)can be used by special interest for public gain
C)is the only way to solve the holdout problem
D)a and b
E)b and c

Question 22

The general public has strong incentives to be informed about regulations that impact them.

Question 23

Government regulations can create de facto monopoly results.

Question 24

The protection of rights is an all-or-nothing proposition.

Question 25

In the abstract,an omniscient government would have little power to move inefficient markets toward efficiency.

Question 26

The holdout problem occurs when _____.

A)unanimity rule is required for any Congressional action
B)free riding is prevalent
C)individuals drafted into the military refuse to report
D)any individual has the power to prevent collective action

Question 27

An underproduction of goods occurs when there is _____.

A)free riding
B)government production
C)holdout
D)eminent domain

Question 28

The argument that government action is justified based on the fact that people would agree to be coerced to do the action if everyone else is forced to do the action is essentially an argument based _____.

A)upon the transitional gains trap
B)on the free rider problem
C)on the ideal of the public interest
D)prisoners dilemma

Question 29

Government's monopoly on force implies that government can both protect and violate rights.

Question 30

The primary problem with the argument that "we agree to be coerced if everyone is coerced" to do an action is _____.

A)there is no way to know whether it is true or not
B)it only applies to a limited number of situations
C)it only applies to actions in the public interest
D)there is no way to force everyone else to go along

Question 31

The free rider problem _____.

A)leads to an understatement of demand for the good in question
B)is beneficial because it leads to lower public spending
C)is functionally equivalent to the transitional gains trap
D)is more prevalent in small groups

Question 32

When government action is justified based on the argument that everyone agrees to be coerced _____.

A)we cannot be sure that everyone is in favor of the action
B)the same justification is true of market exchange
C)we can be sure that the current state of affair is Pareto efficient
D)the private interest becomes the public interest

Question 33

Given the size of the general public relative to the number of regulated firms,political pressures push regulators toward the public interest.

Question 34

The holdout problem arises when unanimous approval among members of a group is required_____.

A)for a Pareto efficient move to occur
B)for a Pareto superior move to occur
C)for government to decide to undertake the project
D)for government to be able to levy the tax to fund the project

Question 35

The government promotes economic efficiency by producing in areas where the market fails to optimally allocate resources.

Question 36

The government has a monopoly on legitimate force.

Question 37

When attempting to build a shopping center the size of several city blocks a developer anticipates a holdout problem in his preferred location.Which of the following is not an option the developer has available to get around the holdout problem?

A)Substituting to another location by building the shopping center on former farmland on the urban fringe.
B)Lobbying the local government to use eminent domain on potential holdouts.
C)Attempting to purchase the properties through dummy corporations to hide his true intent.
D)Using contracts that increase everyone's sale price by a small percentage if everyone sells.

Question 38

Which of the following is not a reason why government programs might fail to achieve their goals?

A)Insufficient information to correctly achieve the goal.
B)One policy goal is in direct conflict with another policy goal.
C)Politicians respond to political incentives to deviate from the goal.
D)Inability to use coercion to achieve the goal.

Question 39

The government protects rights in a market economy by providing national defense,a court system,and a well-functioning political system.

Question 40

Which of the following is not a possible solution to the holdout problem?

A)eminent domain
B)contingency contracts
C)Dutch auction
D)hiding your intentions

Question 41

The equilibrium level of regulation is where the marginal political benefits to the special interests are equal to the marginal political costs of the foregone regulation.

Question 42

"Captured" regulators end up doing exactly what the regulated industry wants.

Question 43

Draw and describe how the equilibrium level of regulation is determined by a legislature.Make sure to clearly label all of your axis and curves.

Question 44

What is the transitional gains trap? In New York,in order to be legal a cab driver must have a medallion (i.e. ,a license)to operate.With respect to New York cab drivers who,if anyone,received transitional gains? What if the medallion program were ended tomorrow.Who would be harmed?

Question 45

Although the government can set the goal of perfect protection of individual rights,actual protection will be less than perfect.How might we determine the optimal level of rights protection? What if the government decided to greatly increase police protection in large cities? Discuss how we might determine whether it would be beneficial to do so.

Question 46

Describe the holdout problem with emphasis on how it might lead to resource being allocated inefficiently.Give three private ways to possibly overcome the holdout problem.

Question 47

The holdout problem is not only relevant to many collective public goods problems,but it is also relevant to the unanimous voting rule.

Question 48

The justification for government action based on the argument that everyone agrees to be coerced if everyone else is forced as well is not compatible with the criterion of Pareto superiority.

Question 49

Assume that the government observes collusion among certain colleges and universities to restrict aid offers to top students.In response,it regulates the industry.How might government regulation improve the allocation of resources in this case? List one possible reason why government regulation might not lead to a more efficient allocation of resources.

Question 50

Helping the poor is not necessarily the same thing as promoting greater equality.