Economics (McConnell) AP Edition, 19th Edition

Chapter 17: Asymmetric Information, Voting, and Public Choice

Quiz

1
Political office holders must typically take stands on and make decisions regarding hundreds of different issues, but voters typically vote for one of only two candidates. This problem reflects:
A)the voting paradox
B)adverse selection
C)limited and bundled choices
D)pork-barrel politics
2
The city council composed of six people is considering three different park expansion proposals. Two council members prefer a bigger park to any smaller park; two others prefer a smaller park to anything bigger. The final two prefer a moderate-size park to either extreme. The final outcome of the vote will:
A)depend on which pair of alternatives is voted on first
B)be the largest park
C)be the smallest park
D)be the moderate size park
3
According to public choice theorists, which of the following circumstances will most likely lead to approval of a given public project?
A)Immediate costs and benefits
B)Delayed costs and benefits
C)Immediate benefits and delayed costs
D)Delayed benefits and immediate costs
4
As the election nears, the positions of the major presidential candidates tend to converge. This is an implication of:
A)adverse selection
B)the median voter model
C)political logrolling
D)government failure
5
Which of the following would be an example of an attempt to reduce the adverse selection problem?
A)An employer requires all employees to participate in its company-subsidized health insurance plan
B)The government subsidizes the use of recycled inputs
C)The government imposes a tax on tailpipe emissions for automobiles
D)An employer monitors her workers to ensure they are not shirking
6
The alleged inefficiency of public bureaucracies arises primarily because:
A)the voting paradox leads to too little public output
B)special interests work to assure the passage of projects whose costs exceed their benefits
C)public sector workers have less training than their private sector counterparts
D)competitive pressures of the market are largely absent
7
In a corporation, one primary principal–agent relationship is exemplified by:
A)owner–stockholder
B)stockholder–manager
C)hourly worker–salaried employee
D)bond holder–stockholder
8
Firms will likely provide the economically efficient level of workplace safety if:
A)monopoly profits provide sufficient resources to cover the cost
B)workers are constrained from readily changing jobs
C)wages are inflexible
D)markets are competitive and workers are informed of safety risks
9
Which of the following best exemplifies the moral hazard problem?
A)Kevin, who knows his new car is a lemon, attempts to sell it to an unsuspecting buyer
B)Given the choice of better family medical coverage or increased paid time away in the company's benefits program, Kelsey selects the former
C)After buying the extended coverage on her rental car agreement, Melissa drives more recklessly than she would in her own car
D)David watches his favorite shows on public television, but never contributes to their pledge drives
10
Suppose the only three members of society will receive marginal benefits from a proposed public project equal to $300, $500, and $800, respectively. However, each must pay taxes of $400 to pay for the total cost. In the absence of vote trading, a majority rule vote will:
A)pass this project and resources will be allocated efficiently
B)pass this project and resources will be overallocated to the project
C)defeat this project and resources will be allocated efficiently
D)defeat this project and resources will be underallocated to the project
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