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Chapter 16: Public Goods and Public Choice
True / False
1. Taxing people according to their marginal valuations of a public good may be efficient, but it may not be fair if the
ability to pay differs.
a.
True
b.
False
True
2. Traditional public-goods legislation usually has a negative impact on the economy.
a.
True
b.
False
False
3. In special-interest legislation, there are both widespread costs and benefits.
a.
True
b.
False
False
4. The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor
prices for milk at $3. Without government intervention, the market price of milk would average $2 per gallon for a market
quantity of 100 million gallons per month. In the graph below, triangle abc represents the consumer surplus at the support
price.
Figure 16.1
a.
True
b.
False
True
5. Taxpayers and consumers end up paying for agricultural price supports.
a.
True
b.
False
True
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Chapter 16: Public Goods and Public Choice
6. Dairy price supports result in a redistribution of welfare from consumers to dairy farmers.
a.
True
b.
False
True
7. Rent-seeking behavior imposes no costs on society.
a.
True
b.
False
False
8. Resources employed to persuade government to redistribute income and wealth to special interests are unproductive.
a.
True
b.
False
True
9. Rent seeking is a zero-sum game because the public’s loss is the rent seeker’s gain.
a.
True
b.
False
False
10. A firm wishing to acquire a monopoly position would be willing to spend up to its anticipated monopoly profit in rent-
seeking activities.
a.
True
b.
False
True
11. Special-interest legislation in a representative democracy benefits lawyers because their annual incomes increase more
than their annual costs.
a.
True
b.
False
True
12. Special-interest legislation generally leads to an increase in social welfare.
a.
True
b.
False
False
13. Decreasing tax rates would likely increase activities in the underground economy.
a.
True
b.
False
False
14. Budget maximization by government bureaus results in a budget equal to that desired by the median voter.
a.
True
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Chapter 16: Public Goods and Public Choice
b.
False
False
Multiple Choice
15. A good that is both rival and exclusive is called a(n):
a.
private good.
b.
public good.
c.
quasi-private good.
d.
external good.
e.
open-access good.
a
16. A good that is neither rival nor exclusive is called a(n):
a.
private good.
b.
public good.
c.
quasi-private good.
d.
external good.
e.
open-access good.
17. Which of the following is an example of a good that is nonrival and nonexclusive in consumption?
a.
Televisions
b.
Haircuts
c.
Pizza
d.
National defense
e.
Tickets to a rock concert
18. A golf course or a swimming pool in a resort that is not crowded is an example of a(n):
a.
private good.
b.
natural monopoly.
c.
open-access good.
d.
public good.
e.
quasi-private good.
19. A good that is nonrival but exclusive is called a(n):
a.
luxury good.
b.
public good.
c.
natural monopoly.
d.
inferior good.
e.
open-access good.
c
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Chapter 16: Public Goods and Public Choice
20. A good that is rival but nonexclusive is called a(n):
a.
private good.
b.
public good.
c.
natural monopoly.
d.
merit good.
e.
open-access good.
21. Which of the following is true of the market demand for a public good?
a.
The market demand curve for a public good is the vertical sum of individual consumer’s demand curves.
b.
The market demand curve for a public good is the horizontal sum of individual consumer’s demand curves.
c.
The efficient quantity of a public good produced occurs where the market demand curve intersects the market
supply curve.
d.
The market demand curve for a public good is the sum of the quantities demanded by each consumer at a
given income level.
e.
The efficient quantity of a public good produced occurs where the marginal utility from the last dollar spent on
the good is zero.
22. The efficient quantity of a public good produced is:
a.
determined by the intersection of the market demand curve and the marginal cost curve.
b.
achieved where the sum of marginal valuations equals the sum of marginal costs.
c.
determined by the intersection of the market demand and market supply curves.
d.
achieved where marginal revenue product equals marginal factor cost.
e.
achieved at the minimum point of the average total cost curve.
23. If taxpayers can enjoy mosquito abatement without paying for it, they tend to understate their true valuation of
mosquito control measures. This is an example of:
a.
a natural monopoly.
b.
the median-voter model.
c.
an open-access good.
d.
the free-rider problem.
e.
irrational ignorance.
24. Suppose the government of Marina decides to pay for public radio by taxing people on the basis of the number of
hours they listen to it. In order to determine the tax, it decides to conduct a survey. However, if the survey is based on
voluntary self-reporting, which of the following is likely to happen?
a.
People who report many hours of listening may pay a small proportion of their income in public radio tax.
b.
Individuals with higher incomes may pay lower taxes than individuals with lower income.
c.
Many individuals may understate the number of hours they listen to public radio to government in order to
reduce their tax bill.
d.
Many individuals may overstate the number of hours they listen to public radio to government in order to
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Chapter 16: Public Goods and Public Choice
receive a lower tax bill.
e.
In order to evade taxes, individuals may shift from the formal, reported economy to an underground, “off the
books” economy.
c
25. Public choices are government decisions about:
a.
public goods only.
b.
taxes only.
c.
public goods and taxes.
d.
private goods.
e.
private services.
c
26. The questions of what type of public goods to produce and how much to produce are resolved:
a.
in product markets.
b.
in resource markets.
c.
only by central planners.
d.
through public choices.
e.
through referenda.
27. The median-voter model attempts to explain why:
a.
law partners seldom agree on the division of costs.
b.
the preferences of the typical voter often dominate other choices in a democracy.
c.
democracies evolve into dictatorships.
d.
people are largely oblivious to most public choices.
e.
resources employed to persuade government to redistribute income and wealth to special interests are
unproductive.
28. In a direct majority-rule vote, _____.
a.
each individual gets whatever amount he or she is willing and able to buy
b.
people vote directly on issues related to choices made in the public sector
c.
only the median voter is completely satisfied
d.
the choices made by the other voters dominate the choice made by the median voter
e.
only the median voter is dissatisfied
c
29. Public choice theory suggests that political candidates try to get elected by:
a.
appealing to conservatives.
b.
appealing to liberals.
c.
appealing to senior citizens.
d.
appealing to the median voter.
e.
lowering taxes.
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Chapter 16: Public Goods and Public Choice
30. Sally, Kelly, and Debbie are roommates deciding on how many cats they want to keep. Sally prefers three cats to two
cats and two cats to one cat. Kelly prefers two cats to one cat and one cat to three cats. Debbie prefers one cat to two cats
and two cats to three cats. If they decide by majority vote, they will get _____.
a.
four cats
b.
one cat
c.
two cats
d.
three cats
e.
five cats
31. Which of the following is true of the median voter model?
a.
Public choices determined by the median voter are not optimal.
b.
The median voter is always a part of the losing side.
c.
Under certain conditions, the median voter determines which outcome wins.
d.
Public choices determined by the median voter are not rational.
e.
Public choices determined by the median voter ensure that each individual gets whatever amount he or she is
willing and able to buy.
32. In a democratic society, the preferences of _____ will often dominate decisions made by direct majority voting
a.
elected government representatives
b.
special interest groups
c.
rent seekers
d.
senior citizens
e.
the median voter
33. Under representative democracy, _____.
a.
the preferences of a median voter are overridden by the outcome of majority rule
b.
people vote directly on issues related to the choices made in the public sector
c.
representatives make public choices that reflect constituents’ views
d.
representatives are always a part of the losing side
e.
each individual gets whatever amount he or she is willing and able to buy
34. If elected officials are assumed to be driven by rational self-interest, they are likely to:
a.
best serve the public interest.
b.
maximize their hours worked.
c.
maximize their political support.
d.
adopt a stance of rational ignorance.
e.
have a profit incentive to act on consumer feedback.
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Chapter 16: Public Goods and Public Choice
35. If voters realize that they have but a tiny possibility of influencing public choices, they:
a.
adopt a stance of rational ignorance.
b.
prefer direct democracy over representative democracy.
c.
engage in rent seeking activities.
d.
vote with their feet.
e.
tend to understate their true valuation of public goods.
36. As information and the time required to acquire and digest it are scarce, _____.
a.
consumers concentrate on private choices rather than on public choices
b.
consumers concentrate on public choices rather than on private choices
c.
it is irrational for consumers to remain ignorant of the costs and benefits of government proposals
d.
voters elect representatives, who always make public choices that reflect constituents’ views
e.
voters have a special economic interest in making informed decisions about public choices
37. Generally, people are more satisfied with private market outcomes than with public voting outcomes because:
a.
each consumer in the private market can choose the quantity he or she desires.
b.
the marginal utility of the last unit of private good is always positive.
c.
the prices of private goods are lower than those of public goods.
d.
the utility derived from the consumption of private goods is higher than that from public goods.
e.
there are too many choices to make in the public sector.
38. The American Association of Retired Persons (AARP) provides checklists that summarize the voting and attendance
records of legislators. Which of the following is true?
a.
If AARP’s members were rational, AARP would not have to do this.
b.
This policy is intended to seek special favors from the governmental bureaucracy.
c.
This policy is intended to reduce voters’ rational ignorance by decreasing the cost of information.
d.
This policy is intended to maximize political support for AARP among non-members.
e.
This policy is intended to track all market activity that goes unreported either to evade taxes or because the
activity itself is illegal.
39. As a result of voters’ rational ignorance, _____.
a.
the outcome of majority rule focuses on the preferences of the median voter
b.
voters elect representatives, who make public choices that reflect constituents’ views
c.
political candidates try to get elected by appealing to the median voter
d.
special interests often dominate legislation
e.
less production gets reported
40. Many eligible voters who do vote do not keep track of the performance records of candidates for public office. This is
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because:
a.
they try to evade taxes by shifting to the underground economy.
b.
they try to reap the benefits from consuming public goods without paying for them.
c.
they adopt a stance of rational ignorance.
d.
political candidates try to get elected by appealing to the median voter.
e.
voters elect representatives, who make public choices that reflect constituents’ views.
41. Under which of the following circumstances would a voter adopt a stance of rational ignorance instead of choosing to
be informed of the public choices at hand in an election?
a.
When the benefit consumers anticipate from becoming informed exceeds the anticipated cost of doing so
b.
When the voters have a special interest in the legislation
c.
When information and the time required to acquire and digest it are scarce
d.
When the median voter in an electorate determines public choices
e.
When political candidates try to get elected by appealing to the median voter
42. Suppose a citizen concludes that he has had enough of big government and decides to launch a personal campaign to
expose the big spenders in Congress. In such a case, _____.
a.
he is likely to have his taxes reduced dramatically
b.
his action is not likely to affect public choices
c.
he is likely to benefit from public goods without paying for them
d.
he is likely to be elected to public office by other voters
e.
his action will get the support of many special-interest groups
43. Rational ignorance suggests that voters may not spend much time examining candidates before an election because:
a.
they do not have a special interest in legislation.
b.
each voter has virtually no chance of affecting the outcome of the election.
c.
only the preferences of the median voter are counted in elections.
d.
candidates are chosen by the electoral college.
e.
it is easy to determine which candidate is better.
44. Rationality implies that in order to get what they want, people will spend the most time and effort:
a.
making private market decisions.
b.
electing the median voter.
c.
investigating political candidates’ platforms.
d.
supplying more of the taxed resource so that their disposable income does not decline.
e.
understating their true valuation of public goods and services.
45. Susie spends more of October thinking about her Halloween costume than she spends thinking about a proposed law
that will be on the November ballot. Which of the following is true?
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Chapter 16: Public Goods and Public Choice
a.
This behavior is rational if she expects a greater benefit from the costume than from any possible effect her
vote could have on the proposed law.
b.
This behavior is rational if she is planning to spend the time from Halloween to Election Day thinking about
the law.
c.
This behavior is not rational because the law is more important than the costume.
d.
This behavior is not rational because Susie is too ignorant to fully understand the law.
e.
This behavior is rational because the legislation involves concentrated benefits and concentrated costs.
46. Rational ignorance occurs when:
a.
voters find the cost of understanding a specific issue greater than the expected benefit from doing so.
b.
legislation generates large benefits for a few people but imposes costs on many people.
c.
the preferences of the median voter dominate public choices.
d.
individuals or firms attempt to obtain favorable treatment from government officials.
e.
people make public decisions based on emotion rather than a rational analysis.
47. Rational ignorance helps explain why:
a.
legislators often trade votes on key issues to produce positive sum games between them.
b.
legislators usually disregard the desires of those constituencies that cannot influence their chances for
reelection.
c.
legislation generates large benefits for a few people but imposes costs on many people.
d.
individuals or firms attempt to obtain favorable treatment from government officials.
e.
voters may choose to remain ignorant of issues when there are large costs associated with becoming informed.
48. An example of traditional public-goods legislation is _____.
a.
price supports for dairy products
b.
a system of justice
c.
a tattoo removal program in San Luis Obispo, California
d.
tort reform
e.
a labor union issue
49. Suppose the legislature of the Democratic Republic of Marina proposes a 10 percent national income tax that would
be used to fund universal health care, literacy, and access to the justice system for all citizens. This legislation is an
example of:
a.
traditional public-goods legislation.
b.
special-interest legislation.
c.
competing-interest legislation.
d.
populist legislation.
e.
quasi legislation.
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50. A public good, such as a community’s emergency warning sirens, typically:
a.
imposes benefits on only a few individuals but imposes costs on many people.
b.
imposes both benefits and costs on relatively few individuals.
c.
imposes benefits on many individuals but imposes the costs on relatively few people.
d.
imposes both benefits and costs on many individuals.
e.
imposes costs on individuals only when logrolling is prevalent in the government.
51. Which of the following federal budget allocations is an example of traditional public-goods legislation?
a.
Funding for cancer research
b.
Funding for the construction of a statue in Alabama
c.
Provision of subsidies to wheat producers
d.
Dealing with labor union issues
e.
Implementation of tort reforms
52. Legislation that benefits a narrow geographical interest is called:
a.
competing-interest legislation.
b.
pork-barrel spending.
c.
populist legislation.
d.
public-good spending.
e.
quasi legislation.
53. Legislation that involves concentrated benefits but widespread costs is called:
a.
traditional public-goods legislation.
b.
special-interest legislation.
c.
competing-interest legislation.
d.
populist legislation.
e.
primary legislation.
54. Which of the following is an example of populist legislation?
a.
Legislation for the restoration of a historic theatre
b.
The government setting a floor price on milk
c.
Legislation for tort reforms
d.
The government providing agricultural subsidies to farmers
e.
Legislation for funding cancer research
55. A large U.S. steel firm wants to restrict imports of Japanese steel, but Ford Motor Company wants fewer restrictions
on steel imports so that its cost of production remains constant. This can best be described as a(n):
a.
zero-sum game.
b.
example of a competing interest.
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Chapter 16: Public Goods and Public Choice
c.
example of a special interest.
d.
situation with widespread costs and concentrated benefits.
e.
free-rider problem.
56. In order to dispose of the nuclear waste created by power plants around the country, the government buys land in
Glowing Gulch, Idaho. Residents of that town organize to block construction of the nuclear waste facility. Which of the
following statements is false?
a.
The benefits of the nuclear waste facility are widespread.
b.
The costs of the nuclear waste facility are concentrated.
c.
The citizens of Glowing Gulch are a special-interest group.
d.
Consumers of the power generated at the nuclear plants are not likely to organize to support construction of
the nuclear waste facility.
e.
The citizens of Glowing Gulch are equally concerned about all public issues.
57. The proposed takeover of Tony’s Airlines by Plummet Airlines will result in increased profits for Plummet and
increased air fares for consumers. This is an example of the:
a.
widespread distribution of benefits and costs.
b.
concentrated distribution of costs and benefits.
c.
concentrated distribution of benefits and widespread distribution of costs.
d.
concentrated distribution of costs and widespread distribution of benefits.
e.
benefit of a narrow geographical interest group.
58. Competing-interest legislation involves:
a.
concentrated costs and widespread benefits.
b.
both widespread costs and widespread benefits.
c.
both concentrated costs and concentrated benefits.
d.
widespread costs and concentrated benefits.
e.
only concentrated costs; benefits are not involved.
59. Special-interest groups, such as the pharmaceutical lobby, often get what they demand because:
a.
politicians are rationally ignorant.
b.
voters are rationally ignorant.
c.
the pharmaceutical lobbying group intends to increase the quality of the service for the public.
d.
they are driven by incentives to produce output at the lowest cost per unit.
e.
bureaus typically rely on the special-interest groups for their revenue.
60. Special-interest legislation is characterized by:
a.
concentrated costs and concentrated benefits.
b.
concentrated benefits and widespread costs.
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c.
widespread benefits and widespread costs.
d.
widespread benefits and concentrated costs.
e.
zero costs.
61. Competing-interest legislation is characterized by:
a.
a quota that limits imports of steel to the United States.
b.
concentrated benefits and widespread costs.
c.
widespread benefits and widespread costs.
d.
widespread benefits and concentrated costs.
e.
zero costs.
62. An example of competing-interest legislation is:
a.
a quota that limits imports of steel to the United States.
b.
a subsidy to cigarette producers.
c.
tax breaks for auto manufacturers.
d.
a new bridge in Arizona funded by general tax revenues.
e.
public education subsidies.
63. Special-interest legislation that imposes costs over many taxpayers can be enacted because:
a.
this legislation involves widespread benefits.
b.
taxpayers remain rationally ignorant of the legislation.
c.
special-interest groups are driven by an incentive to produce output at the lowest cost per unit.
d.
associated taxes are actually borne by a minority of taxpayers.
e.
bureaus typically rely on taxes for part of their revenue.
64. When the government increases taxes to provide traditional public goods, such as national security, there tends to be:
a.
widespread benefits and costs.
b.
widespread costs and concentrated benefits.
c.
concentrated benefits and costs.
d.
widespread benefits and concentrated costs.
e.
widespread costs and zero benefits.
65. JPC Motors benefits from tariffs on imported automobiles. Companies that use imported automobile parts want to get
them cheaply. In this case, the issue of tariff legislation involves:
a.
a simple majority because it promises concentrated costs and benefits.
b.
competing interests because it promises concentrated costs and benefits.
c.
a simple majority because it promises widespread benefits and costs.
d.
competing interests because it promises concentrated benefits and widespread costs
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e.
competing interests because it promises concentrated costs and widespread benefits.
66. With special-interest legislation, _____.
a.
benefits are concentrated but costs widespread
b.
both benefits and costs are concentrated
c.
benefits are widespread but costs concentrated
d.
both benefits and costs are widespread
e.
benefits are widespread and costs are zero
67. Environmentalists, worried about sulfur dioxide in the air, pressure the government to make it mandatory for bus
manufacturers to modify the exhaust systems in buses. In this situation, _____.
a.
the benefits of the proposed requirements are more widespread than costs
b.
the benefits and costs of the proposed requirements are equally widespread
c.
the benefits of the proposed requirements are concentrated but costs widespread
d.
the legislation involves both concentrated benefits and concentrated costs
e.
the advantage conferred by government on some special- interest group requires higher income taxes
68. Legislation that provides a price support for dairy farmers is an example of:
a.
quasi legislation.
b.
competing-interest legislation.
c.
traditional public-goods legislation.
d.
special-interest legislation.
e.
populist legislation.
69. Legislation that provides a subsidies for tobacco growers is an example of:
a.
quasi legislation.
b.
competing-interest legislation.
c.
traditional public-goods legislation.
d.
special-interest legislation.
e.
populist legislation.
70. If general tax revenues were used to subsidize the production of toothpicks, the government’s actions would have:
a.
widespread benefits and costs.
b.
widespread costs and concentrated benefits.
c.
concentrated benefits and costs.
d.
widespread benefits and concentrated costs.
e.
widespread costs and no benefits.
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71. Competing-interest legislation:
a.
imposes benefits on only a few individuals but imposes costs on many people.
b.
imposes both benefits and costs on relatively few individuals.
c.
imposes benefits on many individuals but imposes the costs on relatively few people.
d.
imposes both benefits and costs on many individuals.
e.
imposes costs only on those individuals who are rationally ignorant.
72. Legislators often have difficulty passing legislation with widespread benefits but concentrated costs because those
who bear the costs will _____ the legislation, while those who reap the benefits will _____ the legislation.
a.
protest; actively support
b.
not protest; not actively support
c.
not protest; actively support
d.
protest; not actively support
e.
actively support; protest
73. It is not likely that farm price supports will be replaced by direct transfer payments to farmers because:
a.
direct transfer payments aimed at preserving the family farm raise the costs of entry.
b.
direct transfer payments would attract public attention and threaten the survival of the program.
c.
there is deadweight loss to the society in the case of direct transfer payments.
d.
direct transfers would benefit only the large farmers in proportion to their volume and efficiency.
e.
prices seek the market level which is very high in the case of direct transfer payments.
74. The government of Marina sets floor prices for a wide range of farm products. The dairy farmers who purchased
pasture lands after that legislation is passed will:
a.
end up earning a normal rate of return in the long run.
b.
end up earning a zero rate of return in the long run.
c.
end up earning a negative rate of return in the long run.
d.
benefit substantially from the increased cost of pasture land used in dairy farming.
e.
suffer losses from the increased barriers to entry to the family farm business.
75. The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor
prices for milk at $3. Considering government expenditures on surplus milk but ignoring storage costs, the consumers pay
_____ per gallon for the quantity purchased at the support price.
Figure 16.1
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Chapter 16: Public Goods and Public Choice
a.
$3.00
b.
$4.00
c.
$5.00
d.
$1.00
e.
$2.00
a
76. The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor
prices for milk at $3. At the support price, a surplus of _____ gallons is generated.
Figure 16.1
a.
25
b.
75
c.
100
d.
150
e.
200
77. The following graph shows the market for milk. Suppose the government introduces a variety of policies that set floor
prices for milk at $3. Without government intervention, the market price of milk would average $2 per gallon for a market
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Chapter 16: Public Goods and Public Choice
quantity of 100 million gallons per month. In such a case, total outlays by consumer-taxpayers equal _____, though they
consume _____ fewer gallons.
Figure 16.1
a.
$225 million; 75 million
b.
$3 million; 150 million
c.
$100 million; 50 million
d.
$450 million; 25 million
e.
$2 million; 100 million
78. In the long run, the beneficiaries of farm price supports are:
a.
bureaus.
b.
consumers-taxpayers.
c.
large farmers.
d.
the young owners of specialized resources.
e.
the early owners of specialized resources.
e
79. When the support price for milk and dairy products is higher than the market equilibrium price, _____.
a.
a typical consumer-taxpayer pays an artificially high price for milk and, as a taxpayer, also pays for the surplus
milk
b.
the prices of specialized resources, such as cows and pasture land, decrease
c.
the producer surplus enjoyed by dairy farmers decreases
d.
farmers decrease their quantity supplied in response to the higher price
e.
farmers end up earning a negative rate of return on their investment in the long run
a
80. The following graph shows the market for wool. Suppose the government introduces a variety of policies that set floor
prices for wool at $6. As a result of the price support, the typical consumer-taxpayer in effect pays _____for each pound
of wool actually purchased.
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Chapter 16: Public Goods and Public Choice
Figure 16.2
a.
$6
b.
$5
c.
$12
d.
$11
e.
$1
81. The following graph shows the market for wool. Suppose the government introduces a variety of policies that set floor
prices for wool at $6. As a result of the price support, _____ of surplus wool is generated.
Figure 16.2
a.
100 million pounds
b.
60 million pounds
c.
150 million pounds
d.
90 million pounds
e.
10 million pounds
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82. The following graph shows the market for wool. Suppose the government introduces a variety of policies that set floor
prices for wool at $6. If the government decides to buy the surplus wool generated by the price floor, then they have to
spend _____ per year on wool.
Figure 16.2
a.
$540 million
b.
$360 million
c.
$600 million
d.
$900 million
e.
$300 million
83. When the support price for a good is higher than the market equilibrium price, _____.
a.
resources tend to flow to their lowest-valued use
b.
the quantity of the good demanded by the consumers will increase
c.
producer surplus enjoyed by the suppliers will decrease in the short run
d.
the prices of specialized resources will decrease
e.
consumer surplus will decrease
84. The following graph shows the market for a good. Suppose the government introduces a variety of policies that set
floor prices for the good at $c. Which of the following represents the loss of consumer surplus in this case?
Figure 16.3