Question 1

The Road Runner Club contributes money to Senator Sly's reelection campaign fund, and Senator Sly helps pass legislation to add more jogging paths across the state.From this we can definitively conclude:

Accepted Answer

The information given does not necessarily imply corruption, logrolling, or a principal-agent problem. It's possible the Road Runner Club donated to Senator Sly because he already supported the addition of jogging paths, indicating a shared interest rather than a corrupt exchange.

Question 2

Suppose lawyers seek legislation to limit the use of computer software that enables people to use their personal computers to self-prepare their own wills, trusts, and other legal documents.This is an example of:

Accepted Answer

Rent-seeking behavior refers to individuals or groups seeking to use their resources to obtain economic gain from others without producing any benefits to society. In this case, lawyers are seeking to limit the use of self-prepared legal documents to drive more business towards themselves, rather than seeking to improve the legal system or services provided to clients.

Question 3

What is the main problem with government guarantees that socialize losses and privatize gains?

Accepted Answer

When the government guarantees losses, private investors become insulated from any losses in their investments, which encourages them to take on excessive risks since they won't bear the financial consequences of their poor decisions. On the other hand, when the investments are successful, the gains are privatized by the investors. This creates a system where the risks are socialized while the rewards are privatized, leading to an unfair distribution of consequences.

Question 4

Regulatory capture is said to have occurred when which of the following is true?

Accepted Answer

Regulatory capture occurs when rules and enforcement in an industry are heavily influenced by the industry being regulated, often resulting in the industry being able to shape the regulations in their favor. This can lead to a lack of effective regulation and potentially harmful consequences for consumers. The other options presented do not accurately describe regulatory capture.

Question 5

Proponents of deregulation point to all of the following industries as examples of successful deregulation except for:

Accepted Answer

Proponents of deregulation often point to industries such as airlines, railroads, and interstate trucking as examples of successful deregulation. However, pharmaceuticals is not typically cited as an example since it is heavily regulated due to safety concerns.

Question 6

The field of economics that analyzes government decision making, politics, and elections is called:

Accepted Answer

The field of economics that analyzes government decision making, politics, and elections is known as public choice theory. Public finance refers to the study of government spending, taxation, and debt management, while political economy is a broader field that includes the study of political institutions, social structures, and historical forces that shape economic systems. Collective economics is not an established field of economics.

Question 7

According to some economists, the private sector is more efficient than the public sector mainly because:

Accepted Answer

The private sector has a clear test of performance - profit and loss. The goal of a private firm is to make a profit, which serves as an incentive for businesses to maximize efficiency and minimize costs. In contrast, public sector organizations do not rely on profit and do not face the same financial pressures to operate efficiently.

Question 8

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good.This statement best reflects the:

Accepted Answer

The statement reflects the concept of limited and bundled choices, where representatives have to choose between the entire package of provisions included in the appropriations bill, even if they disagree with some of them. This limited and bundled choice can make it difficult for representatives to fully represent their constituents' preferences and can lead to misrepresentation.

Question 9

Government loan guarantees tend to have the effect of:

Accepted Answer

When the government provides loan guarantees, it essentially means that they are willing to bear the losses in case the borrower fails to repay the loan. This results in socialization of losses, as the risk and cost is borne by the taxpayers. However, if the borrower is able to repay the loan successfully, the gains are enjoyed by the private entity, thereby privatizing the gains. Therefore, government loan guarantees tend to have the effect of socializing losses and privatizing gains.

Question 10

Which of the following would best explain why regulatory capture is a problem?

Accepted Answer

Regulatory capture occurs when the regulatory agency responsible for implementing and enforcing regulations becomes captured by the industry it is meant to regulate. This results in regulations that serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection. This undermines the purpose of regulations and poses problems for society as a whole.

Question 11

Under what circumstances would government loan guarantees be socially beneficial?

Accepted Answer

Government loan guarantees can be socially beneficial when they encourage the production of goods that have positive externalities or are public goods, which are typically underproduced by the private sector due to their inability to capture all the benefits of production. This can lead to a more efficient allocation of resources and greater social welfare.

Question 12

In a sporting goods store, you can buy the equipment you want and not buy the rest.In an election, you "buy" the entire range of the candidate's positions, including some you may not agree with.This difference:

Accepted Answer

In the public sector, choices are often bundled, meaning you must accept the entire package of a candidate's positions, unlike in a store where you can choose only what you want.

Question 13

Deregulation:

Accepted Answer

Deregulation can increase competition by allowing more firms to enter the market and reduce barriers to entry. It can potentially eliminate regulatory capture, where regulators may be influenced by the industries they are meant to regulate. However, it may also lead to negative externalities, which can harm society. Therefore, it is important to carefully consider the benefits and drawbacks of deregulation in different industries. It is not always appropriate to deregulate industries responsible for human safety, financial regulation, and environmental protection. Therefore, choice C is not correct. Finally, it is not always the case that deregulation generates greater economic efficiency.

Question 14

Which of the following is considered a potential solution to some regulatory capture?

Accepted Answer

The answer of Which of the following is considered a...

Question 15

Regulatory capture often occurs because of which of the following?

Accepted Answer

Regulatory capture occurs when the regulators and the industry being regulated develop a mutually beneficial relationship. This can happen because regulators often rely on industry experts for knowledge and guidance, and those experts may eventually move to work for the industry they were supposed to be regulating (known as the revolving door). This creates a conflict of interest that can lead to regulatory capture.

Question 16

Political corruption occurs whenever:

Accepted Answer

Political corruption occurs when government officials use their position of power for personal gain, which includes the unlawful misdirection of governmental resources. The other choices listed are examples of unethical or controversial political behavior, but they do not necessarily constitute political corruption.

Question 17

Which of the following would be the best example of regulatory capture?

Accepted Answer

Regulatory capture is when industry insiders or interest groups exert influence over the government agencies or regulatory bodies that are supposed to oversee them. In this example, executives from major automobile companies are given the responsibility of writing rules related to automobile safety and fuel requirements. This creates a situation where industry interests are represented at the expense of public interests, which is a classic example of regulatory capture.

Question 18

The unlawful misdirection of governmental resources for personal gain is known as:

Accepted Answer

Political corruption involves the misuse of government resources, including funds, power, and influence, for personal gain. This can take many forms, including bribery, embezzlement, and nepotism. The other options are not directly related to this definition.

Question 19

Which of the following will tend to socialize losses and privatize gains?

Accepted Answer

Government guarantees to private investors that they will get their money back even if the company fails socializes losses because taxpayers ultimately have to foot the bill if the company cannot repay the loans. At the same time, private investors still benefit from their investments if the company succeeds, thereby privatising gains.

Question 20

Public choice theorists point out that the political process:

Accepted Answer

Public choice theory argues that the political process is similar to the marketplace in many ways, but there are some important differences. One of these differences is that voters and congressional representatives often face limited and bundled choices, which means they may not be able to express their true preferences or choose the option that is best for them individually. This can lead to outcomes that are not efficient or fair from an economic perspective.

Quiz 5: B: Governments Role and Government Failure