The Condorcet Paradox: OA) is not a paradox at all. It is not surprising that people who make rational decisions in their private life make irrational decisions in their political decisions. B) was named after a German economist who first discovered that only a government can produce public goods due to the free-rider problem. C) arises when voters are confronted with a series of pair wise votes on three or more issues, and the overall winner of the vote can cycle based on who was placed in the runoff election first. D) proves that majority voting always leads to a socially rational outcome where we can declare that the winner of the election represents the "will of the people" 3 The public failure known as informational problems: 3 A) is generally larger in government than in markets since markets get correct valuations from consumers and producers in market prices while government often gets incorrect valuations from voters and special interest groups. B) is generally smaller in government than in markets since people have no incentive to tell the truth about preferences in market transactions, but do have a strong incentive to tell the truth about valuations in asking for government services. OC) is a misnomer. Most people are very informed about what the government is doing. D) is low for things that government does not charge directly for, but is high for things that the government does charge directly for. Price $30- S 20+ 20 15+ 10+ 5 D 100 200 300 400 500 600 700 800 Quantity Refer to the figure. In this market, if the current price was $10, A) There would be a shortage of 100. B) There would be a shortage of 600, C) There would be a surplus of 200 D) There would be a surplus of 400. If the government orders the price to remain at $10, this is a price ____ and equilibrium take place. a) ceiling--will b) ceiling -- will not Oc) floor--will d) floor--will not Question 38 (7 points) Government contracts often pay on a cost-plus basis. The means the price the government pays to the producer is all costs of production plus "x" percent. Critics say this encourages firms to pad costs (e.g. hire more people than necessary at high salaries). This sounds like failure and is inefficiency. a) market -- productive b) market--allocative c) government-productive d) government--allocative What do market failure and government failure have in common? a) They both take away efficiencies. b) They decrease total social surplus Oc) they all involve bureaucracy problems, especially positive externalities. Od) Both a) and b) are correct. Question 40 (7 points) The typewriter factory closes and lays off all their employees. A computer factory opens down the street and hires all the laid-off workers. What kind of unemployment best describes the former typewriting factory workers? a) Seasonal Ob) Cyclical c) Structural d) Frictional What is a good argument for Federal Reserve autonomy (independence)? a) so that the Federal Reserve can push for a gold standard Ob) because what's economically needed may not be politically feasible Oc) to keep the Federal Reserve accountable to the voters. Od) to keep politicians happy Question 42 (7 points) Why might some not approve of Federal Reserve autonomy? O a) because this makes the President have too much influence on the Federal Reserve b) because most Federal Reserve officials have little or no knowledge of economics Oc) because this makes Congress have too much influence on the Federal Reserve d) because it gives too much power to unelected officials