Chapter 5 – Goverment’s role and Goverment Failure

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The many layers of the federal government in the United States:

lead to economic inefficiencies because of difficulty aggregating and conveying information.

(Consider This) The collective action problem refers to:

difficulty in organizing and motivating large groups to achieve desired outcomes.

Government fiscal policy involves changing which of the following?

Taxes and government spending.

As it relates to owners and managers, the principal-agent problem results from the:

separation of corporate ownership and control.

Public choice economists:

use the tools of economics to analyze decision making, politics, and elections in the public sector.

Public choice theorists contend that:

public bureaucracies are inherently less efficient than private enterprises.

Suppose a college economics department decides to use a single economics text for all sections of principles of economics. Also assume that the three individual members of the textbook selection committee have the following preferences.
Professor: a)Adam, b)Bennett, c)Clay
Ideal Textbook: a)C/F, b)M/B, c)O/S
Analytical level of the textbook: a)Very difficult, b)moderately difficult, c)relatively easy

selecting the M/B book.

Suppose three roommates cannot agree on the size of a pizza to order. Domino argues for a medium pizza, Godfather contends a large pizza will be needed, and Little Caesar wants a super-large pizza. Assuming no paradox of voting, majority voting will result in a decision to order:

a large pizza.

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:

concept of limited and bundled choices.

A situation in which society may not be able to rank its preferences consistently through paired-choice majority voting refers to:

the paradox of voting.

The U.S. federal government’s largest unfunded liability is:

Social Security.

Monetary stimulus is only helpful to an economy:

that is in recession.

Regulatory capture often occurs because of which of the following?

Nearly everyone with expertise works in the regulated industry.

"Pork-barrel" legislation that contains funding for hundreds of earmarks throughout numerous states often reflects:


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:

nothing; the Road Runner Club may have donated to Senator Sly because he already supported the jogging paths.

An economic analysis of the relationship between proposed legislation affecting major employers in each state and the voting patterns of senators and representatives in Congress on that legislation would fit within the subcategory of economics called:

public choice theory.

Public choice theory focuses on the economics of:

government decision making, politics, and elections.

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

Deregulation of the industry.


eliminates regulatory capture and can improve outcomes by increasing competition.

"Vote for my special local project and I will vote for yours." This political technique:

is called "logrolling."

(Consider This) Government passes a law requiring all domestic clothing factories to pay workers at least $20 per hour. As a result, domestic clothing companies move their operations overseas, leaving domestic workers unemployed. This situation illustrates the problem of:

unintended consequences.

Individual accountability within the government bureaucracy:

tends to be lacking because of civil service protections and the complexity of government.

Suppose that friends Jennifer, Stephanie, and Megan cannot agree on how much to spend for a bouquet of flowers to send to a person that allowed them to use their beach house for the weekend. Jennifer wants to buy a moderately priced bouquet, Stephanie wants to buy an expensive bouquet, and Megan wants to buy a very expensive bouquet. Assuming no paradox of voting, majority voting will result in the decision to buy:

an expensive bouquet.

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

public choice theory.

Public choice economists contend public bureaucracies are inefficient primarily because:

of the absence of competitive market pressures.

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


(Last Word) In their effort to provide disaster relief after Hurricane Katrina, the Federal Emergency Management Agency (FEMA) made payouts on as many as 900,000 claims with invalid Social Security numbers or false names and addresses. This example illustrates:

bureaucratic inefficiency.

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

Rules and enforcement in an industry are heavily influenced by the industry being regulated.

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

the private sector has a clear test of performance: profit and loss.

In corporations, owners are _______ and managers are ________.

principals; agents

Public choice economists hold that politicians will:

favor programs entailing immediate and clear-cut benefits and vaguely defined or deferred costs.

Which of the following is a source of government failure?

The enormous size and scope of government.

Public choice theorists point out that the political process:

differs from the marketplace in that voters and congressional representatives often face limited and bundled choices.

Which one of the following topics would be of the most interest to a public choice economist?

Rent-seeking behavior.

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

political corruption.

Under what circumstances would government loan guarantees be socially beneficial?

When the guarantees promote production of goods otherwise underproduced by the private sector.

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