Govt. Decision Making: Public Choice

Question 1

Free market prices function

Answer 1

Ration goods to consumers who most want them.
Give incentives to producers to satisfy consumers
Give incentives to conserve scarce resources.
Transmit information throughout the economy, as explained below.

Question 2

the calculation problem.”

Answer 2

To manage the economy, the state would also need to know how to do every job in the economy. How many US senators know how to herd sheep, build a search engine like Google, manufacture iPhones, or style hair? And even if the state knows how iPhones are made, it does not know how they would have been made if the scarcity of materials changed—which happens all the time. If the state is to improve on the market, then politicians must know this information better than people who do these jobs.

Question 3

spontaneous order

Answer 3

that people organize themselves and interact efficiently, if given freedom to do so
—“good order results arise spontaneously when things are let alone.”

Question 4

natural experiment

Answer 4

…

Question 5

ch 3 taxes Bastiat

Answer 5

“If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?” Bastiat

Question 6

public choice school

Answer 6

explores how self-interested government employees make decisions

Question 7

rational ignorance

Answer 7

refusing to expend resources to gather information that will almost certainly not lead to a change in the quality of life.

Question 8

fallacy of division

Answer 8

thinking that what is true for a group must be true for all the individuals of the group.

Question 9

individual choice

Answer 9

where individuals decide for themselves.

Question 10

Authoritarian Choice

Answer 10

involves a single individual or governing body making decisions for the populace.

Question 11

Democratic Choice

Answer 11

is an authoritarian choice made by individuals voting on decisions for the entire populace.

Question 12

Direct cost of regulation

Answer 12

• Government administrative costs

- Compliance cost

Question 13

Indirect Costs of Regulation

Answer 13

results from changes in behavior of firms and individuals due to the regulation, including :

• value of output that is not produced due to the regulation, and
• wasteful activities that the regulation encourages, such as spending resources to hire lobbyists, to avoid the regulation, or to take advantage of loopholes that are inefficient, except for the regulation—like expensive tax shelters

Question 14

Government administrative costs

Answer 14

—sacrificed in order to pay government employees to monitor the regulatory program and enforce the statutes.

Question 15

Compliance cost

Answer 15

how much must be sacrificed by the regulated entity to follow the law, which includes reporting costs, planning and administrative costs, and consulting costs.

Question 16

Regulatory capture

Answer 16

occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties.

Question 17

Rent seeking

Answer 17

involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems.

Question 18

Bootleggers and Baptists problem

Answer 18

an interesting form of rent seeking, because the rent seeker uses others to do his bidding. The bootleggers can only make a living if alcohol is illegal, since efficient legal production would put them out of business. So they depend on the Baptists, who also wish alcohol to be illegal, but for non-materialistic reasons, to protect them in the regulatory process. Hence, any special interest that wants to acquire taxpayer dollars or wants regulators to squash an opponent could profit from finding a group that supports their aims, but for a high-minded reason

Question 19

Status quo minus fallacy

Answer 19

It proposes that we consider the status quo,
eliminate one element of it, and conjecture that this removed element will have only a direct effect which will never
be compensated for. I

Question 20

law of unintended consequences

Answer 20

is the warning that intervening in a complex system may create unanticipated and often undesirable outcomes.

Question 21

What are the advantages of Free Market?

Answer 21

• Markets utilize the ingenuity of millions of minds.
• There are millions of small market experiments, each with low risk.
• In markets, there is competition to serve others.
• In markets, there are incentives to use resources efficiently.