Question 1

Economists often analyse the interaction of individuals and firms in markets. Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others, a process that is referred to as

Accepted Answer

Rent seeking is the term used to describe the actions of individuals or firms who attempt to use government regulations or subsidies to increase their own profits or wealth at the expense of others. This can lead to inefficiencies in the market and a loss of overall economic welfare.

Question 2

Some individuals seek to use government action to make themselves better off at the expense of others. The actions of these individuals

Accepted Answer

The term "rent seeking" refers to individuals or entities seeking to increase their own wealth or status through the manipulation of government policies or regulations in a way that harms others. This can take various forms such as lobbying for subsidies, tariffs or regulations, or blocking competition. Rent seeking activities do not create additional value but they redistribute existing value, often from consumers or taxpayers to politically connected special interests. It is a well-known concept in modern economics, and it illustrates some of the ways government intervention can lead to inefficient and unjust outcomes.

Question 3

Which of the following statements about rent seeking is false?

Accepted Answer

Rent seeking is not necessarily illegal, but it is generally considered socially wasteful because it redistributes resources without creating new wealth. While there may be laws against specific forms of rent seeking, such as bribery or corruption, rent seeking as a general concept is not illegal.

Question 4

One result of the public choice model is that most economists believe that

Accepted Answer

The public choice model suggests that policymakers may have incentives to intervene in the economy for reasons other than promoting economic efficiency, such as gaining votes or pleasing special interest groups. Therefore, economists do not always believe that government intervention will lead to a more efficient outcome.

Question 5

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

Accepted Answer

The answer of Logrolling refers to attempts by individuals to...

Question 6

Economic rent is defined as

Accepted Answer

The answer of Economic rent is defined as
...

Question 7

A public good that is a good that is both rival and excludable.

Accepted Answer

A public good by definition is non-excludable and non-rivalrous. If a good is both rivalrous and excludable, it is classified as a private good.

Question 8

Rent-seeking behaviour, unlike profit maximising behaviour in competitive markets, wastes society's scarce resources.

Accepted Answer

Rent-seeking involves using resources and efforts to gain monopoly power or influence over government policies, rather than producing goods or providing services in a competitive market. This can result in deadweight losses or inefficiencies to society, as scarce resources are diverted towards unproductive activities that do not create value or contribute to economic growth. Therefore, rent-seeking behaviour is considered a source of economic inefficiency and social inequality.

Question 9

'When it comes to public goods, individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement.

Accepted Answer

The answer of 'When it comes to public goods, individuals...

Question 10

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Accepted Answer

Access restriction through community norms and laws is a way to combat the tragedy of the commons by preventing overuse of the scarce resource. The other options are either not feasible or do not address the root of the problem. Subsidies to consumers would encourage more use of the resource, forcing people to move away is not a practical or ethical solution, and advertising campaigns can only do so much in changing behavior.

Question 11

What is the relationship between market failure and government failure?

Accepted Answer

The answer of What is the relationship between market failure...

Question 12

What is rent seeking and how is it related to regulatory capture?

Accepted Answer

The answer of What is rent seeking and how is...

Question 13

State whether each of the following goods and services is non-rival, non-excludable or both:
a. A toll road
b. A public park
c. A lighthouse
d. An art museum
e. A radio broadcast of 'A Prairie Home Companion'

Accepted Answer

The answer of State whether each of the following goods...

Question 14

Which of the following is not an example of rent-seeking behaviour?

Accepted Answer

Engaging in aggressive advertising that slams a competitor's product is not an example of rent-seeking behavior. Rent-seeking behavior refers to activities by individuals or firms that attempt to obtain special benefits from the government, such as subsidies, tariffs, or exclusive rights to import a product. Aggressive advertising, while potentially unethical, is a common business practice and does not involve government intervention.

Question 15

Define the tragedy of the commons. Give three examples of common resources. Briefly explain why common property resources are subject to overuse.

Accepted Answer

The answer of Define the tragedy of the commons. Give...

Question 16

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Accepted Answer

The social benefit of a public good is determined by adding up the individual benefits that each person receives from the public good, resulting in a vertical or upward sloping social benefit curve.

Question 17

A modern example of the tragedy of the commons is the forests in many poor countries.

Accepted Answer

Many poor countries have limited resources and lack proper management of their forests, resulting in overexploitation and destruction of the forests, which are often considered as common property. This leads to a tragedy of the commons, where individuals act in their own self-interest and exploit the resource without considering the long-term consequences for everyone.

Question 18

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms 'rivalry' and 'excludability' as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

Accepted Answer

The answer of Goods differ on the basis of whether...

Question 19

Economic rent refers to the price of a factor of production which is fixed in supply.

Accepted Answer

Economic rent is the price paid for the use of a factor of production whose supply is fixed. This can include rent paid on land or patents on intellectual property.

Question 20

The price of a factor of production that is in fixed supply is called

Accepted Answer

Economic rent is the price paid for a factor of production that is in fixed supply, such as land, that is not affected by changes in demand or supply. It represents the difference between the earnings derived from a given quantity of the factor of production and the minimum amount necessary to induce its use in production.

Quiz 14: Government Intervention in the Market