question

Buyers will opt out of markets in which:

answer

there is inadequate information about sellers and their products.

question

Sellers will opt out of markets in which:

answer

information about buyers is inadequate, and some buyers can impose high costs on the sellers.

question

Upon buying a car with airbags, Indy begins to drive recklessly. This is an example of the:

answer

moral hazard problem.

question

Firms are not likely to provide sufficient workplace safety if:

answer

workers are unaware of workplace hazards.

question

Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an unsuspecting buyer. This circumstance illustrates:

answer

asymmetric information.

question

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

answer

public choice theory.

question

The trading of votes by elected officials to secure favorable outcomes is called:

answer

logrolling

question

The principle that under some circumstances majority voting fails to make consistent choices reflecting the community's underlying preference is best demonstrated by the:

answer

paradox of voting.

question

As it relates to corporations, the principal-agent problem is that:

answer

the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).

question

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

answer

separation of corporate ownership and control.

question

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

answer

often accompanies pork-barrel politics.

question

Suppose American winemakers convince the Federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of:

answer

rent-seeking behavior.

question

A special-interest issue is one whose passage yields:

answer

large economic gains to a small number of people and small economic losses to a large number of people.

question

Public choice theorists point out that the political process:

answer

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

question

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:

answer

idea of limited and bundled choice.

question

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

answer

logrolling.

question

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

answer

reflects limited and bundled choices in the public sector.

question

In 2008, the U.S. Federal government legislation authorized:

answer

10,160 earmarks totaling $19.6 billion.

question

"Earmarks" refer to:

answer

authorized expenditures that benefit a narrow, specifically designated group, that are included in more comprehensive spending legislation.

question

Political corruption occurs whenever:

answer

government officials use unlawful misdirection of governmental resources for their own personal gain.

question

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway. The concept of moral hazard would predict that it is unlikely that students will study for the exam.

answer

True

question

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

answer

True

question

Even if a majority of the population wants a law and the law is passed, the outcome may still be economically inefficient.

answer

True

question

The paradox of voting is that under majority voting rules the median-voter decides the election outcome.

answer

False

question

The principal-agent problem is a problem for the private sector, but does not apply to political decision-making.

answer

False

question

As it applies to insurance, the moral hazard problem is the tendency for:

answer

those who buy insurance to take less precaution in avoiding the insured risk.

question

As it applies to insurance, the adverse selection problem is the tendency for:

answer

those most likely to collect on insurance to buy it.

question

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance. Mary, who has five kids needing braces, selects the family dental coverage. This is an example of the:

answer

adverse selection problem.

question

In response to the financial crisis that began in 2007, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bailouts and encourage banks to be fiscally irresponsible in the future. This illustrates:

answer

the moral hazard problem.

question

Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates:

answer

asymmetric information.

question

Public choice economists:

answer

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

question

"Government failure" is a prominent topic in:

answer

public choice theory.

question

Senator A agrees to vote for Senator K's state project in exchange for Senator K voting for Senator A's state project. This is an example of:

answer

logrolling.

question

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. Assuming all other textbook qualities except analytical level are the same, paired-choice majority voting will result in the committee:

answer

selecting the M/B book.

question

In representative democracy, voters are ____________ and politicians are ____________.

answer

principals; agents

question

Economists call the pursuit of a transfer of wealth through government at someone else's expense:

answer

rent-seeking behavior.

question

(Consider This) The "lemon" problem associated with the market for used cars:

answer

results from asymmetric information and adverse selection.

question

(Consider This) Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of:

answer

asymmetric information.

question

The adverse selection problem is the tendency for workers to shirk when they are not being monitored.

answer

False

question

The moral hazard problem is the tendency of some parties to a contract to alter their behavior as a result of the contract in ways which are costly to the other party.

answer

True

Econ 2010 McGraw Hill Chapter 17 – Flashcards

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