Deck 25: Public Goods, the Consequences of Strategic Voting Behavior, and the Role of Government

Question 1

Rival consumption occurs when consumption of a good by one person ____________ the quantity of the good available for consumption by others.

A) has no effect on
B) decreases
C) increases

Answer 1

decreases

Question 2

The Gibbard-Satterthwaite theorem states that, when a single outcome is to be chosen from more than two alternatives, all possible voting rules can be manipulated.

Answer 2

False

Question 3

In the Lindahl model, the government's role is as a(n)

A) coordinator or market aid
B) intervener or controller
C) hands-off observer

Answer 3

coordinator or market aid

Question 4

A competitive equilibrium for a market with both private and public goods is called a

A) Lindahl equilibrium
B) Pareto equilibrium
C) Nash equilibrium

Question 5

The weakness of the Lindahl solution is the

A) free-rider problem
B) presence of public goods
C) competitive pricing system

Question 6

A mechanism that creates the incentive for people to reveal their public goods preferences in a truthful manner is called a Lindahl-revealing mechanism.

Question 7

The performance correspondence is a relationship between the environment and the set of desired outcomes, which tells us which outcomes will never satisfy our performance criteria.

Question 8

Goods that have the properties of nonexcludability and nonrival consumption are called

A) private goods
B) public goods
C) Pigouvian goods

Question 9

When members of a society have incentives to take advantage of a public good by not contributing to paying its costs, society experiences the

A) free-rider problem
B) Pareto problem
C) strategic-voting problem

Question 10

The free-rider problem occurs when members of a society have incentives to take advantage of a public good by contributing to paying its costs.

Question 11

Which of the following is a Pareto-optimal condition for an economy with public goods and many private goods?

A) Private goods should be allocated until that point at which the marginal rate of substitution between any two goods equals their price ratio
B) The marginal rates of technical substitution of the inputs to production of only two goods must be equal
C) The marginal rates of substitution equal the marginal rates of transformation for any two goods

Question 12

A demand-revealing mechanism creates the incentive for people to reveal their public goods preferences in a

A) deceptive manner
B) truthful manner
C) probabilistic manner

Question 13

The Borda count method is used to choose between k alternatives where the voters allocate k votes to their first alternative, k - 1 votes to their second, k - 2 votes to their third, etc. The alternative receiving the largest total number of votes is the one chosen by the voting body.

Question 14

The behavior of interest groups in their attempt to extract rents from the government or other authorities is called strategic renting.

Question 15

Excludability occurs when consumption of a good is restricted to certain people, such as people who are willing to pay for the good.

Question 16

Voting in a manner that does not reflect one's true preferences in an effort to affect the outcome of a vote is called strategic voting.

Question 17

Goods that have the properties of excludability and rival consumption are known as

A) public goods
B) competitive goods
C) private goods

Question 18

As a general rule, society should provide a public good until that point at which the marginal benefit to society of having one more unit produced is __________________ the marginal cost of the good

A) less than
B) equal to
C) greater than

Question 19

Agenda manipulation is the process by which an individual who controls the agenda for a committee or voting body manipulates the order in which pairs of alternatives are voted on in an effort to influence the outcome.

Question 20

Arrow's impossibility theorem demonstrates that there is a voting mechanism that determines transitive social preferences and also satisfies the five conditions for a desirable voting mechanism.

Question 21

In the streetlight example of a demand-revealing mechanism, the "optimal" plan is the one that ____________ the difference between the total amount the members are willing to pay for a plan and its cost.

A) maximizes
B) minimizes
C) equalizes

Question 22

A relationship between the environment and the set of desired outcomes, which tells us which outcomes will never satisfy our performance criteria is known as

A) rent-seeking behavior
B) the performance correspondence
C) the Borda count method

Question 23

What is the key assumption on which the Lindahl solution depends?

Question 24

Summarize the reasons that some people feel that there is a legitimate role for government intervention.

Question 25

Give some examples that support the Gibbard-Satterthwaite theorem.

Question 26

In voting for one-dimensional issues, if a person has a uniquely best alternative she or he prefers and her or his preferences decline as the distance between this best alternative and the alternative under consideration increases, then preferences are single

A) utility
B) peaked
C) optimal

Question 27

According to the Gibbard-Satterthwaite theorem, when a single outcome is to be chosen from more than two alternatives, the only voting rule that cannot be manipulated is

A) the Borda count method
B) a dictatorial one
C) majority rules

Question 28

You like to play loud music at your house. One day you notice your neighbors dancing to your music. What type of good is your music?

Question 29

Under the conditions that lead to strategic voting, truth-telling __________ a Nash equilibrium strategy.

A) must be
B) is
C) is not

Question 30

A theorem that demonstrates that there is no voting mechanism that determines transitive social preferences and also satisfies the five conditions for a desirable voting mechanism is called

A) Arrow's impossibility theorem
B) Arrow's possibility theorem
C) Arrow's straight-shot theorem

Question 31

To break the cycling of social preferences that results from the voting paradox, society might have to rely on

A) Coasian bargaining
B) some external authority
C) the Lindahl solution

Question 32

The voting paradox holds that, even if all the people in a society have transitive preferences, the preferences of society taken as a whole

A) need not be transitive
B) must be transitive
C) will never be transitive

Question 33

Which of the following is a reason for some type of government mediation in a market?

A) social conflict over appropriate levels of public goods
B) need to aggregate the preferences of individuals to reach a socially desirable outcome
C) Both answers are correct

Question 34

Rent seeking implies that the loss to society from monopolies established by the government is much greater than the deadweight loss because of all the money wasted on

A) production
B) lobbying
C) living in apartments

Question 35

The moral of the agenda manipulation story is to beware of

A) the agenda
B) double-peaked preferences
C) Both answers are correct

Question 36

A professor is trying to decide which tutorial Web site to post for an economics course. Exhibit 25-1 is a demand-revealing mechanism representing students' truthful answers about their preferences for three different sites. Which site has the highest total willingness to pay?

A) A
B) B
C) C

Question 37

One condition for an ideal voting mechanism is

A) group selfishness
B) nondictatorship
C) Stackelberg optimality

Question 38

The behavior of interest groups in their attempt to extract rents from the government or other authorities is called

A) the performance correspondence
B) rent-seeking behavior
C) the Borda count method

Question 39

The auction election mechanism differs from the demand-revealing mechanism because the former requires that decisions be made

A) unanimously
B) by simple majority
C) based on total willingness to pay

Question 40

What is so bad about rent seeking behavior?