Name: ____________________________________________ Economics ± Dr. Sauer
Homework #2 (40 points)
or questions 1 ± 30 (30 points), please indicate your answers on a scantron sheet. It is okay to work on your homework in groups, but each person must submit answers individually.
or questions 31-33 (10 points), you may tear off that sheet tohand in.
1. True or False. Government inefficiency cannot be explained by using the theory of incentives.2. Under what situations should the government be involved in providing goods or services that society values?a. When the good or service is otherwise provided by foreign firms. b. When the good or service is cheap to provide.c. When there is a compelling reason to believe the private sector will fail at providing the good or service.d. When the private sector can¶t figure out how to produce the good or service.3. The private sector allocates resources according to ______ while the government sector allocates resources according to ______.a. scarcity and prices; political considerations. b. political considerations; scarcity and prices.c. scarcity and prices; supply and demand.d. political considerations; supply and demand.4. True or False. All regulations, even good ones, have costs.5. True or False. On the question of the optimal size of a government, economics has a clear answer.6. Which of the following is NOT true with respect to taxes?a. exert a fiscal drag on the economy. b. often cause deadweight loss for society.c. often cause the economy to grow.d. often cause people and firms to change their behaviors.7. Many people mistakenly believe that cutting taxes will result in more income for the government. This is called thea. Laffer Curve Paradox. b. Tax-cuts-increase-revenues Fallacy.c. Taxing-Spending Enigma.d. Puzzle of the Budget.8. Which of the following are ³costs´ or problems associated with government regulations?a. They can create perverse incentives or unintended consequences. b. They can end up limiting competition (e.g. requiring higher standards for new firms).c. They can be pushed for by people who aren¶t directly involved in the situation (e.g. people in the US who want to³save the rainforest´ in other nations).d. Either all of the above or none of the above.9. True or False. Economists would agree that all regulations are bad.10. Which of the following is NOT part of the economic framework for thinking about government and the economy?a. Government has the potential to enhance the productive capacity of the economy, which makes us better off. b. Some government activity ³shrinks the size of the pie´ but still may be socially desirable.c. Sometimes government involvement in the economy is purely destructive.d. There is an optimal size for the government.11. True or False. Information asymmetry is a common problem in today¶s society.12. Asymmetric information is a situation wherea. all parties have the same access to the relevant information. b. parties have different access to the relevant information.c. private parties have the same access to government information.d. the government releases the information.