Coase made famous a court case between a doctor and a confectioner. Suppose that exact case happened again and transactions costs were absent. When would we be sure that resources were inefficiently allocated? a. If the confectioner wins the property right to make his confections. b. If the doctor wins the right to prevent the […]
The justification for government action based on the argument that everyone agrees to be coerced if everyone else is forced as well is not compatible with the criterion of Pareto superiority. a. True b. False ANSWER a
What is the transitional gains trap? In New York, in order to be legal a cab driver must have a medallion (i.e., a license) to operate. With respect to New York cab drivers who, if anyone, received transitional gains? What if the medallion program were ended tomorrow. Who would be harmed? ANSWER The transitional […]
Describe the holdout problem with emphasis on how it might lead to resource being allocated inefficiently. Give three private ways to possibly overcome the holdout problem. What will be an ideal response? ANSWER The holdout problem arises when unanimous agreement is required for a collective action. The holdout problem can prevent Pareto superior moves […]
Expenditures on education equal about _____ of state and local government financial outlays. a. one quarter b. one third c. one half d. two thirds ANSWER b
The benefit principle states that_____. a. people who benefit from the rule of law should pay taxes b. people who benefit from Social Security should voter for it c. people who benefit from a government activity should pay for it in proportion to their wealth d. people who benefit from a government activity should be […]
Which of the following is not a feature of an efficient tax? a. An efficient tax should minimize the excess burden of taxation. b. An efficient tax should have low compliance costs. c. An efficient tax should be equitable. d. An efficient tax should be easy to monitor and administer. ANSWER c
A key difference between clubs and government is _____. a. government requires everyone within its jurisdiction to participate b. government acts on behalf of the poor c. government is not frivolous, like most clubs d. government requires collective action ANSWER a
It is clear that government provision of education is not necessary _____. a. because of the existence of private schools b. from the size of positive externalities c. because of the lack of asymmetrical information between parents and teachers d. because education externalities are negatively inframarginal ANSWER a
Translating the preferences of each individual into the preferences of the group is _____. a. a challenge faced only by clubs b. a challenge faced by all collective decision making organizations c. inherent in all decision making d. a challenge faced only by government ANSWER b
