In his classic treatise on public finance, Richard Musgrave says the economic activities of the state can be broken down into _____. a. allocation, distribution, production b. allocation, distribution, stabilization c. allocation, production, protection d. production, protection, allocation ANSWER b
Which of the following is not a limitation of the Pareto criteria? a. Almost any policy change will make at least one person worse off. b. The status quo is lent legitimacy from being the starting point for evaluating social welfare. c. The criteria cannot tell us if a particular policy change will make all […]
If the Pareto criteria are taken literally, _____ percent of United States residents must agree for a policy change to be a move towards efficiency. a. 25 b. 50 c. 75 d. 100 ANSWER d
The government protects rights in a market economy by providing _____. a. production b. allocation c. registration d. courts ANSWER d
The optimal level of rights protection is _____. a. zero b. the marginal cost of additional protection equals the market price of the good c. the marginal cost of additional protection equals the marginal benefit of the good d. absolute ANSWER c
Outcomes are likely to be Pareto superior if they were _____. a. approved of by a unanimous vote b. enacted by a bureaucrat c. decreed by a judge d. enacted by bipartisan legislation ANSWER a
Pareto optimality and Pareto superiority _____. a. concern only monetary gains and losses b. compare utility gains with utility losses c. do not require interpersonal utility comparisons d. are equivalent to the concept of economic efficiency ANSWER c
If the utility function (U) between food (F) and clothing (C) can be represented as U = , the marginal rate of substitution of clothing for food equals A) -C/F. B) -F/C. C) – . D) – . ANSWER A
Market exchange assumes that _____. a. there are no monopolies b. prisoner dilemmas are nonexistent c. parties to the exchange have well-defined property rights d. the public sector is failing its job ANSWER c
Employing utilitarianism as a measure of the public interest _____. a. is inconsistent with the concept of a social welfare function b. attempts to minimize the problems associated with market failure c. attempts to maximize total utility in a society d. avoids comparing individual’s utilities ANSWER c