Deck 2: Principles for Analyzing Government

Question 1

The market system is based upon _____.

A)money
B)voluntary exchange
C)capitalism
D)profits

Answer 1

B

Question 2

The key difference between the Pareto optimality and Pareto superiority is that ______.

A)Pareto optimality is incompatible with utilitarianism,while Pareto superiority is compatible
B)Pareto superiority is superior to Pareto optimality
C)Pareto optimality requires interpersonal utility calculations,while Pareto superiority does not
D)Pareto optimality refers to a state of the world while Pareto superiority compares two states of the world

Answer 2

D

Question 3

Employing utilitarianism as a measure of the public interest _____.

A)is inconsistent with the concept of a social welfare function
B)attempts to minimize the problems associated with market failure
C)attempts to maximize total utility in a society
D)avoids comparing individual's utilities

Answer 3

C

Question 4

If government did not individual rights,the efficiency of a market economy_____.

A)would decline
B)would be about the same
C)would increase
D)could possibly decline or possibly increase

Question 5

The idea that the public interest should be equated with those policies that produce the greatest good for the greatest number _____.

A)is the utilitarian criterion
B)is the Pareto optimality criterion
C)is the Hobbesian criterion
D)is a value free judgment

Question 6

Government institutions that protect the rights of individuals are ______.

A)the executive,legislative,and judicial branches of government
B)federal,state,and local governments
C)federal agencies such as OSHA,FEC,and the FCC
D)police,military branches,and the court system

Question 7

The Pareto optimality concept is _____.

A)equivalent to the concept of economic efficiency
B)equivalent to Pareto superiority
C)equivalent to utilitarianism
D)equivalent to cost-benefit analysis

Question 8

Which of the following is not a drawback of utilitarianism?

A)There exists no valid way to make interpersonal utility comparisons.
B)Is incompatible with the Pareto criteria.
C)It is not directly compatible with economic efficiency.
D)It implies social arrangements that most people would find objectionable.

Question 9

Which of these is not a valid reason for government intervention into mutually beneficial exchange?

A)The market system might not function at all without government protecting certain rights
B)The market system produces an efficient outcome that the majority does not like
C)The government might be able to undertake some activities more efficiently than the market outcome.
D)The market allocation might be viewed as inequitable,so redistribution might be desired to achieve equity goals.

Question 10

The market system is able to allocate resources efficiently because individuals have the right to the output they produce and _____.

A)freedom of the press
B)freedom of speech
C)freedom of movement
D)freedom of exchange

Question 11

_____ a cornerstone of the market economy.

A)Mutually beneficial exchange is
B)A strong central bank
C)Monopoly rents are
D)Government regulation is

Question 12

As long as the value of additional units of output exceed the opportunity cost of that output,_____.

A)it will not be produced
B)it likely will not be produced
C)it will be produced
D)it is likely to be produced

Question 13

The Pareto superiority concept _____.

A)is equivalent to utilitarianism
B)is equivalent to equilibrium in a perfectly competitive market
C)compares two different states of the world
D)looks at a state of the world and judges its superiority

Question 14

Pareto optimality and Pareto superiority _____.

A)concern only monetary gains and losses
B)compare utility gains with utility losses
C)do not require interpersonal utility comparisons
D)are equivalent to the concept of economic efficiency

Question 15

The right of people to receive the value of their output as determined by the market _____.

A)leads to people pursuing their own selfish ends,with little regard for others
B)leads individuals to produce only goods that will appeal to the masses
C)provides strong incentives to produce goods that will make themselves happy
D)provides incentive to produce goods that others find valuable

Question 16

The subject matter of public economics falls into the two general categories of _____ and _____.

A)public interest;private interest
B)coercion action;individual liberty
C)revenue generation;government spending
D)civilian activities;military duties

Question 17

Utilitarianism is inconsistent with _____.

A)the social welfare function
B)cost-benefit analysis
C)the Pareto criteria
D)slavery

Question 18

Using the above figure and the Pareto criteria to determine the public interest,would a move from point A to point C be in the public interest?

A)yes
B)no
C)possible,depending upon other factors
D)cannot say using the Pareto criteria

Question 19

Which of the below statements is true?

A)It is efficient to produce beyond the equilibrium output level as long as costs are low.
B)The level of output that maximizes the value of an economy's output is found at the intersection of supply and demand in a competitive market.
C)Production and exchange is beneficial as long as the demand curve lies below the supply curve.
D)Mutually beneficial exchange is mostly harmful unless regulated.

Question 20

Which of these is not true?

A)Government uses its powers of coercion and force to collect taxes
B)Government uses its powers of coercion and force to protect rights
C)Government uses its powers of coercion and force to violate rights
D)Government uses its powers of coercion and force only to improve the general welfare

Question 21

Outcomes are likely to be Pareto superior if they were _____.

A)approved of by a unanimous vote
B)enacted by a bureaucrat
C)decreed by a judge
D)enacted by bipartisan legislation

Question 22

Positive economic analysis _____.

A)evaluates policy changes and determines whether it is a good idea
B)seeks to understand the outcome of a policy change
C)cannot be proven incorrect
D)is a statement about "what ought to be"

Question 23

Normative analysis is very important to public finance because _____.

A)public policy enacted by government is the result of voting by individuals
B)positive analysis is full of value judgments
C)we should be concerned with how the world works
D)voluntary exchanges are economically efficient

Question 24

Every market exchange is a Pareto superior move.

Question 25

If the Pareto criteria are taken literally,_____ percent of United States residents must agree for a policy change to be a move towards efficiency.

A)25
B)50
C)75
D)100

Question 26

Normative economic analysis _____.

A)is concerned only with the facts
B)is a statement about the relationship between a policy change an outcome
C)judges the desirability of a policy change
D)does not involve value judgments

Question 27

Coercion and force underlie government activity.

Question 28

When comparing public and private schools,the voluntary choice of going to a private school _____.

A)is a Pareto optimal move
B)is a Pareto superior move
C)is neither Pareto optimal nor Pareto superior
D)cannot be evaluated according to the Pareto criteria

Question 29

Production and exchange is beneficial as long as the demand curve lies below the supply curve.

Question 30

Which of the following is a normative economics statement?

A)An increase in the minimum wage will reduce teenage employment.
B)Increasing the minimum wage will result in more votes for progressive candidates.
C)Raising the minimum wage would greatly increase labor costs in certain industries.
D)Raising the minimum wage is a poor idea because living wage laws are better.

Question 31

Which of these is an argument for using the potential compensation criterion?

A)If the winners can compensate the losers,no one is harmed by employing the criterion.
B)The criterion does not employ interpersonal utility calculations.
C)If employed over a large number of policy changes,everyone should enjoy a net gain in the long run.
D)It is easy to determine the magnitude of the wins and losses.

Question 32

If compared against other criteria for evaluating the public interest,the social welfare function is most comparable to _____.

A)utilitarianism
B)the Pareto criteria
C)the potential compensation criterion
D)cost-benefit analysis

Question 33

A government strong enough to protect individual rights is also strong enough to violate them.

Question 34

Using the utilitarian criterion,it is possible that slavery could be in the public interest.

Question 35

Which of the following statements about the social welfare function is not true?

A)It can be thought of as a set of indifference curves that depict the wealth of the entire society.
B)It does not employ interpersonal utility comparisons.
C)It is one possible method for evaluating the public interest/
D)It allows for the rankings of possible outcomes.

Question 36

Which of the following is not a limitation of the Pareto criteria?

A)Almost any policy change will make at least one person worse off.
B)The status quo is lent legitimacy from being the starting point for evaluating social welfare.
C)The criteria cannot tell us if a particular policy change will make all participants better off.
D)The criteria do not allow for the ranking of all possible states of the world.

Question 37

Which of the following statements about economic efficiency is not true?

A)Economic efficiency is equivalent to Pareto optimality.
B)Economic efficiency can be determined normatively.
C)Economic efficiency is superior to equity.
D)Economic efficiency can be evaluated positively.

Question 38

Which of the following would not satisfy the potential compensation criterion?

A)The winners from a policy change could compensate the losers so everyone would be better off.
B)The policy change was approved by a unanimous vote.
C)The policy change was a Pareto superior move
D)The policy change moved from a Pareto optimal position to a non-Pareto optimal position.

Question 39

Equity and efficiency _____.Thus,_____.

A)are always consistent with each other;trade-offs between the two are necessary
B)are never consistent with each other;trade-offs between the two are unnecessary
C)might be consistent in certain situations;trade-offs between the two might be necessary
D)might be consistent in certain situations,trade-offs between cannot be made

Question 40

If everyone agrees to a change,then the change will be a Pareto Superior move.

Question 41

Public finance economists should only concern themselves with positive economic analysis.

Question 42

Compare and contrast Pareto optimality and Pareto superiority and provide a brief discussion of the advantages of the Pareto criteria in assessing the public interest.

Question 43

Cost-benefit analysis does not employ interpersonal utility calculations.

Question 44

The goal of equity is fundamentally a positive issue.

Question 45

When acting upon the potential compensation criterion,the winners must compensate the losers to the exchange.

Question 46

While limited in their practical applications,the real value of the Pareto criteria is in allowing the public interest to be judged without making interpersonal utility calculations.

Question 47

What is cost-benefit analysis? Suppose that you were asked to do a cost benefit analysis of tearing down an elderly woman's ancestral home to provide space to expand a local high school.What difficulties might you encounter?

Question 48

Briefly list and discuss in turn the three limitations of the Pareto criteria.

Question 49

Draw a demand and supply curve for a competitive product,making sure to clearly label the axis.Give a brief explanation for why the resulting equilibrium is economically efficient.

Question 50

Suppose that a particular policy would result in a $100 gain for Gwen but a $20 loss for Sabrina.Everyone else in the economy remains the same.Is this policy change in the public interest according to the potential compensation criterion? Explain and justify your answer.