Question 1

The market and public sector are similar in that
A) there is competition amongst the participants in both sectors.
B) the resources used in both sectors are scarce.
C) the participants in both sectors react to incentives.
D) All of the above are true.

Accepted Answer

All of the above are true. Competition, scarcity of resources, and incentives play an important role in both the market and public sector.

Question 2

List and explain the four key assumptions in the theory of public choice.

Accepted Answer

The answer of List and explain the four key assumptions...

Question 3

Government goods are provided to the consumer at a zero price. This means that
A) the cost to society is zero.
B) the political system is run by proportional rule.
C) people are getting something for nothing.
D) the cost of the goods is the value of the resources used to produce the good.

Accepted Answer

The answer of Government goods are provided to the consumer...

Question 4

The incentive structure is a
A) system of rewards and punishments that individuals consider when making decisions.
B) system determined by the federal government that gives certain states more federal funds.
C) system of infrastructure in the United States that improves commerce.
D) system of checks and balances in the government.

Accepted Answer

The incentive structure refers to the rewards and punishments that individuals consider when making decisions. It includes factors such as financial compensation, recognition, and job security, as well as negative consequences like loss of employment or reputation. The incentive structure plays a significant role in shaping behavior, particularly in the business world where it can be used to motivate employees, increase sales, or drive innovation.

Question 5

What is the assumption underlying public-choice theory?
A) Elected officials believe in cooperating with one another and they seek to avoid competition among themselves.
B) The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector.
C) Individuals act within the political process to improve their own individual well-being.
D) Resources in the public sector are not scarce.

Accepted Answer

Public-choice theory assumes that individuals act within the political process to improve their own individual well-being. It takes into account the fact that individuals within the government are still self-interested and motivated by personal gain or pleasure, just like individuals in the private sector. This assumption guides the analysis of how incentives impact behavior, and how institutional design can help align those incentives in a way that is beneficial for society as a whole.

Question 6

A difference between the market and the public sector is that
A) scarcity exists only in the market sector.
B) government can use force, while the market does not.
C) we can only vote in the public sector.
D) the cost of private goods to society is zero.

Accepted Answer

The government has the power to enforce laws and regulations using force, while in the market sector, individuals and businesses must rely on voluntary transactions and persuasion to make exchanges. Hence, B is the correct choice. A is incorrect because scarcity exists in both the market and public sectors. C is incorrect because voting is just one method of public sector decision-making, but there are other methods like lobbying, interest groups, etc. D is incorrect because private goods always have a cost to society, such as the opportunity cost of resources used to produce them.

Question 7

All of the following are assumptions of both market and public-sector decision making EXCEPT:
A) Decisions are based on majority rule.
B) Decisions are motivated by individuals' self-interest.
C) Opportunity costs exist in decisions.
D) Choices reflect incentives faced by decision makers.

Accepted Answer

Market decision making is based on individual preferences and choices, while public-sector decision making often involves minority rights and protections. Public-sector decision making may also involve bureaucratic processes and expert opinions, rather than simply majority rule.

Question 8

The theory of public choice
A) is the theory of how government decides on what military hardware to purchase.
B) considers government decision-making efficient.
C) is the study of collective decision making.
D) is the study of how negative externalities can be reduced.

Accepted Answer

The theory of public choice is the study of collective decision making, specifically how individuals and groups make decisions and allocate resources in the public sphere. It examines how incentives, individual self-interest, and democratic processes shape government decision making. It does not focus on specific government decisions, such as military hardware purchases, and generally does not view government decision making as efficient. It may indirectly address negative externalities, but that is not its primary focus.

Question 9

A difference between the market and the public sector is that
A) competition exists only in the market sector.
B) resources are only scarce for the market sector.
C) decision making is by majority rule in the public sector but not in the market sector.
D) only the public sector produces private goods.

Accepted Answer

The answer of A difference between the market and the...

Question 10

What are the voting rules followed by the political system as opposed to the market system?

Accepted Answer

The answer of What are the voting rules followed by...

Question 11

The theory of public choice suggests that
A) government agencies tend to be inefficient because the people running them do not understand the concept of opportunity cost.
B) government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient.
C) the goods provided by government, whether public or private goods, are not scarce.
D) you can lower your tax bill if you are careful not to consume too many government resources, regardless of what your neighbors do.

Accepted Answer

The theory of public choice suggests that government agencies tend to be inefficient because they are subject to institutional arrangements in which managers do not have an incentive to be efficient. This is due to factors like the lack of competition and the difficulty of measuring performance in the public sector.

Question 12

In which of the following ways is the private market sector similar to the public sector in terms of decision making?
A) Prices determine the demand for goods and services in each sector.
B) There is competition for scarce resource in both sectors.
C) Both sectors may use a type of "force" if necessary.
D) Votes by individual voters are basically equal in importance with dollars spent by individuals on goods.

Accepted Answer

The answer of In which of the following ways is...

Question 13

Briefly explain the similarities and differences of decision making by the market sector and the public sector.

Accepted Answer

The answer of Briefly explain the similarities and differences of...

Question 14

An important assumption in the theory of public choice is that
A) individuals will act within the political process to maximize their individual well-being.
B) individuals will act within the political process to maximize their collective well-being.
C) individuals will only operate outside the political process when their well-being is involved.
D) scarcity does not exist in the government sector.

Accepted Answer

Public choice theory assumes that individuals, including politicians and bureaucrats, will act to maximize their individual self-interest within the political process. This can include pursuing personal gain, seeking re-election, or responding to special interest groups. The assumption is that public officials will not necessarily act in the best interest of society as a whole, but rather in the interest of their own goals and objectives.

Question 15

Which of the following is TRUE about the political and market systems of voting?
A) The political voting system functions according to proportional rule, while the market voting system functions according to majority rule.
B) The political voting system functions according to majority rule, while the market voting system functions according to proportional rule.
C) The political voting system functions according to minority rule, while the market voting system functions according to majority rule.
D) The political system and the market system are identical.

Accepted Answer

In the political voting system, the candidate or policy that receives the majority of votes wins, while in the market voting system, the product or service that receives the majority of purchases or investments is successful. Proportional rule is not typically used in either system. Therefore, option B is the most accurate description of the differences between the two systems.

Question 16

Scarcity
A) affects both market and public sector decision making.
B) affects market, but not public sector decision making.
C) affects public sector, but not market decision making.
D) is really not an issue in such a wealthy nation as the United States.

Accepted Answer

Scarcity affects both market and public sector decision making because both sectors face limited resources and must make choices about how to allocate those resources. In the market sector, scarcity affects decisions about what goods and services to produce, how much to produce, and at what price to sell them. In the public sector, scarcity affects decisions about how to allocate government resources and how to prioritize spending on different programs and services. Therefore, option A is the best answer. Option B and C are incorrect because scarcity affects both sectors, albeit in different ways. Option D is incorrect because scarcity is a fundamental economic issue that affects all nations, regardless of their wealth.

Question 17

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the
A) majority rule.
B) proportional rule.
C) government rule.
D) profit rule.

Accepted Answer

This scenario describes the proportional rule, which means that as demand increases, production increases at the same rate to maintain a balance between supply and demand.

Question 18

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?
A) The incentive system for individuals to perform efficiently are vastly different.
B) The workers themselves are really quite different types of people.
C) In both sectors individuals will try to maximize their own individual gains over the gains of others.
D) Costs and resources are vastly different in each sector.

Accepted Answer

In the private sector, the incentive for individuals to perform efficiently is usually tied to financial rewards and potential for career advancement. In contrast, the public sector often has less of a focus on financial incentives and instead may emphasize job security, public service, and other non-monetary rewards. This can lead to differences in motivation and efficiency between the two sectors.

Question 19

Which of the following is FALSE about public-sector decision making?
A) Decisions are based on majority rule.
B) The price charged to consumers is often less than its full opportunity cost.
C) Decisions involve no opportunity cost.
D) Incentives play a role in decision making.

Accepted Answer

Decisions in the public sector, like in any other sector, involve opportunity costs. Choosing one course of action necessarily means forgoing another.

Quiz 5: Public Spending and Public Choice

The market and public sector are similar in that

List and explain the four key assumptions in the theory of public choice.

Government goods are provided to the consumer at a zero price. This means that

The incentive structure is a

What is the assumption underlying public-choice theory?

A difference between the market and the public sector is that

All of the following are assumptions of both market and public-sector decision making EXCEPT:

The theory of public choice

A difference between the market and the public sector is that

What are the voting rules followed by the political system as opposed to the market system?

The theory of public choice suggests that

In which of the following ways is the private market sector similar to the public sector in terms of decision making?

Briefly explain the similarities and differences of decision making by the market sector and the public sector.

An important assumption in the theory of public choice is that

Which of the following is TRUE about the political and market systems of voting?

Scarcity

If U.S. consumers increase their spending on hybrid cars by 60 percent, and 60 percent more hybrid cars are produced, this is known as the

Which of the following characterizes the largest difference between the way decisions are made in the private sector versus the public sector?

Which of the following is FALSE about public-sector decision making?