Deck 14: The Role of Government and Public Goods

Question 1

Very uneven distribution of goods in a market is one of the possible causes of market failure.

Answer 1

False

Question 2

The market for health insurance has been experiencing market failure due to economies of scale in insurance provision which results in a natural monopoly.

Answer 2

False

Question 3

A set of diet recommendations to help diabetes patients maintain optimal blood sugar levels is a public good.

Answer 3

True

Question 4

In the absence of a profit motive, the primary motive of government bureaucrats is so called "kingdom building," that is, maximizing the number of government employees.

Question 5

In 1983, Reverend Wells founded ODAAT (One Day At A Time) as a comprehensive support center for recovering homeless addicts in Philadelphia. ODAAT is especially effective in channeling at-risk individuals to social services for HIV/AIDs testing. This is an example of a non-governmental organization (NGO) in the voluntary sector which aids government operations.

Question 6

People have a strong incentive to hide their true willingness-to-pay, or valuation, of a public good because taxing officials might use it to get them to pay more taxes.

Question 7

Board certification by the American College of Surgeons in a particular surgery is one way surgeons can use to privatize the public good of surgical knowledge and extract monopoly rents from it.

Question 8

Direct government funding of healthcare expenditures was more than $1.4 trillion in 2012. Including the subsidy for preferential tax treatment, this represents more than half of all health care spending in the U.S. In recent years, this funding has been increasing. This increased spending comes at a very low, almost negligible, opportunity cost in terms of spending on public health care programs and medical research & development, as these entries in the government budget have their own separate funding.

Question 9

Provision of health statistics by the National Center for Health Statistics is an example of the government performing its role as provider of a public good.

Question 10

Medical research, as well as Medicare and Medicaid programs, are funded as entitlements by the government.

Question 11

Information on the quality, emergency preparation, and any violation citation history of nursing homes is compiled and made available free of charge in the Center for Medicare & Medicaid Services AHRQ data base. If a firm uses the AHRQ data and repackages it and sells it online, this is an externality.

Question 12

Any research publication which receives NIH funding must be published in the PUBMED database, which is available free of charge to anyone with internet connection. This is consistent with the goal of providing research and knowledge to as many people in society as possible.

Question 13

To classify a good as either private or public, it is sufficient to look into the following two basic characteristics of public goods: whether the good is nonexclusive and whether the good is inexhaustible. Thus, there is always a clear distinction between private and public goods.

Question 14

The roles of government include all of the following tasks except

A) enforcing contracts between private parties.
B) providing public financing when appropriate.
C) protecting health of individuals against unsafe products.
D) providing public goods.
E) taking over production of healthcare services causing positive externalities.

Question 15

The Coase Theorem

A) suggests that government intervention is necessary for an efficient outcome.
B) is generally successful in assigning property rights for public goods.
C) points out that high transaction costs are a barrier to efficiency.
D) helps explain Arrow's Impossibility Theorem.
E) is an example of how Arrow's Impossibility Theorem can be implemented.

Question 16

If a congressional leader passes a bill favorable to a particular pharmaceutical firm, then resigns to take a consultant position with the same firm, this may be an example of

A) political interest group balancing.
B) public welfare maximization.
C) regulatory capture.
D) bureaucratic kingdom building.
E) inappropriate redistribution of income.

Question 17

The role of the government as a provider of health care is

A) unheard of in the U.S.
B) always an improvement on private provision.
C) very common in the U.S.
D) only seen in the Veterans Affairs health system in the U.S.
E) only seen in the Medicare system in the U.S.

Question 18

Which three properties characterize public goods? Public goods are

A) inexhaustible, indivisible and nonexclusive.
B) exhaustible, divisible and exclusive.
C) indivisible and nonexclusive, but exhaustible.
D) inexhaustible and indivisible, but exclusive.
E) inexhaustible and nonexclusive, but divisible.

Question 19

All of the examples listed below, with one exception, are public goods which at times might possibly lose some of their public good properties due to congestion. Which example is an exception?

A) large urban nonprofit hospital
B) small nonprofit clinic for homeless people funded by a charitable organization
C) emergency departments of nonprofit hospitals
D) discoveries made through medical research
E) national health insurance

Question 20

Which of the following statements is false?

A) Immunizations for children for some diseases have a marginal cost of just pennies. Providing the immunizations for free is explained by the high cost of any possible outbreak of the disease.
B) Diversity of tastes in a society makes it difficult to agree on the amount of public provision of a public good that is socially desirable.
C) Laws concerning whether individuals with mental illness are legally capable of making decisions are generally consistent with laws concerning whether individuals are medically able to make decisions determining their health.
D) It is generally agreed that of the over 600,000 Americans who died in the Civil War, over half of their deaths were due to disease.
E) One of the challenges of free information is that sometimes it may be hard to convince others that certain measures are worth implementing. Examples include the slow implementation of citrus fruit eating to prevent scurvy or the resistance to the work of Florence Nightingale in improving sanitary conditions in field hospitals in the Crimean War.

Question 21

Which of the following statements is true?

A) Producer interests are diffused, while consumer interests are concentrated.
B) For public goods, the marginal cost of adding one more consumer is zero.
C) Different groups' support or opposition to any government law or regulation is, in most cases, based on people's beliefs in what is right and what is wrong.
D) The market for dental services is an example of a natural monopoly in most large urban areas in the US.
E) When dealing with problems created by natural monopolies, one of the approaches economists usually tend to favor is for government to take over the production of that good or service.

Question 22

Rational ignorance means you and I can go to school each day, eat, sleep and never think twice about the health safety of the products we consume. Name as many products as you can that you use on a regular basis which you count on the federal government to certify as safe.

Question 23

Explain the interaction among the ideals of public welfare maximization, regulatory capture, and bureaucratic objectives in enacting policy regarding a controversial vaccine aimed at fighting a potential epidemic.

Question 24

What are the most difficult aspects of the Coase Theorem in solving a problem like spread of a dangerous flu by those who are not vaccinated against it? Assume the vaccine is 99.9% effective.

Question 25

In Bermuda, there are no rivers or other bodies of water for drinking water. Each home must collect rain water in giant storage tanks, which supplies almost all of the homes' needs. Is water a public good in Bermuda?

Question 26

"Lines of patients outside the methadone clinic each morning create a negative externality to people waiting for the bus to go to work and school." Criticize or defend this statement.

Question 27

It is possible that pesticides sprayed on coffee bean crops poses unknown threats to the future health of those who consume it. It is also possible that pesticides sprayed on mountain crops runs downward to collect and affect other crops in countries such as Nicaragua, where government testing and regulation standards differs from U.S. The Fair Trade movement, which includes coffee, chocolate and other products, is aimed at making consumers aware of the poor living conditions of workers in countries like Nicaragua. It partners with local growers to insure a wage a bit higher than the local wage to produce a quality of coffee beans that meets the definition of organic. How is the Fair Trade movement seeking to overcome rational ignorance of U.S. consumers? What incentive to U.S. consumers have besides a sense of environmental responsibility to pay a higher price than for other coffees?

Question 28

Discuss the role of monopoly rents from the welfare loss imposed by the number of physicians supplied being less than the number of physicians demanded. Which parties practice rent seeking? Does this create a deadweight loss or increase market efficiency?

Question 29

Almost half of all injuries to U.S. soldiers in Iraq have come from surviving attacks with IEDs, Improvised Explosive Devices. Many of the injuries cause traumatic brain injuries and loss of limbs. What positive externality might possibly come from such fatalities?

Question 30

Consider Al. Al, is an alcoholic, spent 15 years in his addiction drinking heavily. For 10 years now, he's been a recovering alcoholic. He attends support meetings and contributes to the care of newly sober alcoholics and addicts. He has turned his life around. Al recently found out he has a rare liver disease. Since liver transplant demand far exceeds the available supply of livers for transplant, a rationing body ranks those waiting for a transplant in a sort of lottery system. Should the ranking committee allow Al on the list? Would your answer change if Al were still a drinking alcoholic? What is different about your reasoning?