Public Sector Economics The Role of Government in The American Economy 1st Edition Holcombe Test Bank

Public Sector Economics The Role Of
Government In The American Economy

1st Edition Holcombe Test Bank
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CHAPTER
8
Public Sector Demand
Multiple-Choice Questions
1. The median voter model examines the outcome of majority rule decisions and _____.
a. concludes that the outcome will be the one preferred by the median voter
b. assumes that the outcome will be determined by the median voter
c. uses the median voter to analyze the decision-making of bureaucrats
d. found that the median voter has no role in political decision-making
Difficulty: Easy
Answer: a
Section and/or page number: The Median Voter Model, p. 155
2. Which of the following is an assumption of the median voter model?

a. Voters are assumed to have heterogeneous preferences.
b. Voters are assumed to be able to place all possible election outcomes within a one-dimensional
continuum.
c. Voters are assumed to have homogenous preferences.
d. Voters are assumed to be able to compare current election outcomes with past election outcome with
perfect recall.
Difficulty: Medium
Answer: b
3. The conclusion of the median voter model is that_____.

a. private sector demands of the median voter influences their demand for public goods
b. the median voter is omniscient
c. public sector demand will be the demand of the median voter
d. decision-making costs will be high if the median voter is rationally ignorant
Difficulty: Easy
Answer: c
Section and/or page number: The Median Voter, p. 155
4. Which of the following is not an assumption of the medium voter model?

a. Voters can place all election alternatives along a one-dimensional continuum.
b. Voters always vote their true preference.
c. Voters prefer alternative closer to their preferred outcome.
d. Voters engage in preference falsification.
Difficulty: Hard
Answer: d
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5. If voters prefer alternatives closer to their most preferred outcome to alternatives farther away from their
most preferred outcome, we can say that voters have _____.
a. single-peaked preferences
b. double-peaked preferences
c. rational preferences
d. irrational preferences
Difficulty: Medium
Answer: a
6. When applied to committees, the median voter model concludes that _____.
a. becomes irrelevant as committees will be unable to select a clear outcome
b. the committee selects the outcome preferred by the median voter
c. when preferences are double peaked, the committee meets the demand of the median voter
d. a cyclical majority will emerge, if voters are irrational
Difficulty: Medium
Answer: b
Section and/or page number: The Committee Process, p. 155
7. The _____ allows voters to vote on a series of marginally smaller quantities of a good.
a. committee version of the medium voter model
b. representative democracy version of the medium voter model
c. referendum version of the medium voter model
d. cyclical majority
Difficulty: Medium
Answer: c
Section and/or page number: A Referendum Model, p. 156
8. The referendum version of the median voter model concludes that _____.
a. by decreasing output slowly, the median voter will adjust her preferences to those of the ballot
organizer
b. by increasing output slowly, the median voter will adjust her preferences to those of the ballot
organizer
c. the outcome preferred by the median voter will be chosen by unanimity
d. the outcome preferred by the median voter will be chosen by majority rule
Difficulty: Medium
Answer: d
9. The median voter model predicts that in a representative democracy _____.

a. party platforms will converge to one preferred by the median voter
b. successful politicians will emulate the median voter
c. third parties will not exist
d. successful politicians come from the median political party
Difficulty: Medium
Answer: a
Section and/or page number: The Median Voter In A Representative Democracy, p. 157
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10. A process of _____ among candidates in a representative democracy leads to the outcome preferred by the
median voter.
a. cheating
b. political competition
c. bargaining
d. log-rolling
Difficulty: Easy
Answer: b
11. In general, the medium voter model can be described as a powerful model for _____.
a. analyzing demand for public goods
b. analyzing the dynamics of business cycles
c. analyzing demand aggregation in a democracy
d. analyzing the supply of politicians
Difficulty: Easy
Answer: c
12. Political candidates tend to be very similar in a representative democracy because _____.
a. most candidates are wealthy
b. the average voter demands conformity
c. of cyclical majorities
d. party platforms converge toward the median voter
Difficulty: Hard
Answer: d
13. Nathan does not vote because he feels as he does not have a real choice. To him, “all politicians are exactly
the same.” Which of the following statements might lend some credence to Nathan’s observation?
a. In a representative democracy, politicians must appeal to the median voter if they hope to be
successful.
b. In a representative democracy, politicians are uniformly graduates of Ivy League schools.
c. In a representative democracy, politicians exclusively come from wealthy families.
d. In most representative democracies, individuals similar to Nathan do not vote and thus are not
represented in the political process.
Difficulty: Medium
Answer: a
Section and/or page number: Candidates Tend To Adopt Similar Platforms, p. 159
14. Which of the following statements does not follow from the median voter model?
a. Party platforms tend to converge to the median.
b. The farther a candidate is away from the median voter, the more support she will have.
c. Third parties generally cannot win elections.
d. Political candidates tend to be quite similar to one another.
Difficulty: Medium
Answer: b
Section and/or page number: Extreme Candidates, p. 160
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15. The median voter model suggests that _____.
a. extreme candidates are unlikely to change positions over time
b. extreme candidates have an easier time winning election because of the fervor of their supporters
c. extreme candidates will have a difficult time winning election
d. extreme candidates will be able to move a party’s platform to better fit their positions
Difficulty: Easy
Answer: c
16. Political competition between candidates, especially attempts to paint one’s opponent as being extreme,
shows that _____.
a. the way to be a successful politician is to fight dirty
b. cyclical majorities will never exist
c. there is an opportunity for third parties
d. politicians implicitly accept the validity of the median voter model
Difficulty: Medium
Answer: d
17. The median voter model explanation for the landside victory of Ronald Reagan over Walter Mondale is
that _____.
a. Reagan was far closer to the median voter than Mondale
b. Reagan was far more charismatic than Mondale
c. Reagan was able to use the power of incumbency to overwhelm Mondale
d. Reagan was able to be more extreme than Mondale and still win
Difficulty: Easy
Answer: a
18. When a single candidate is chosen by majority vote in a democracy, the political systems _____.
a. tend to become corrupted
b. tend to be two-party systems
c. tend to be one-party systems
d. tend to be three-party systems
Difficulty: Medium
Answer: b
Section and/or page number: The Equilibrium Number of Political Parties, p. 161
19. Third parties generally cannot win elections under a majority vote system because _____.
a. the original two parties make it illegal for third parties to exist
b. the original two parties are able to use the power of incumbency to raise the large amount of money
necessary to run a winnable election
c. the original two parties will have already split the voting population by placing their platforms on
either side of the median voter
d. the original two parties have already “locked-in” most eligible voters as members of their parties
Difficulty: Hard
Answer: c
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20. Cyclical majorities can occur when _____.
a. voters have single-peaked preferences
b. voters are rationally ignorant
c. voters are irrationally ignorant
d. voters do not have single-peaked preferences
Difficulty: Medium
Answer: d
Section and/or page number: The Cyclical Majority, p. 163
21. A _____ is when no one outcome can defeat all others by majority rule.
a. cyclical majority
b. single-peaked preference
c. political business cycle
d. political institution
Difficulty: Easy
Answer: a
22. Voters who do not have single-peaked preferences _____.

a. prefer outcomes closer to their most preferred outcome to outcomes further away
b. do not necessarily prefer outcomes closer to their most preferred outcome to outcomes farther away
c. prefer all outcomes the same
d. are unable to weigh one outcome against another outcome, regardless of where the outcome is along
a one-dimensional continuum
Difficulty: Hard
Answer: b
23. While cyclical majorities can lead to unstable outcomes, they generally do not because of _____.
a. rational ignorance
b. double-peaked preferences
c. political institutions
d. majority rule
Difficulty: Easy
Answer: c
Section and/or page number: Cycles and Political Institutions, p. 164
24. Even when preferences are _____, the _____ will produce a single winner.
a. not single peaked; equilibrium
b. single peaked; log-rolling
c. cyclical; majority rule system
d. cyclical; primary system
Difficulty: Medium
Answer: d
8-5
25. Economists call the fact that the general public has little incentive to become informed about most political
issues _____.
a. rational ignorance
b. irrational voting
c. a diminishing political marketplace
d. cyclical political institutions
Difficulty: Easy
Answer: a
Section and/or page number: Rational Ignorance of Voters, p. 166
26. It is often said that if we could get more individuals to study the issues and vote we could have significant
change through the ballot box. While true in a technical sense, which of the following statements best
explains why this outcome is not likely to occur?
a. Individuals have double-peaked preferences and thus cyclical majorities will be prevalent.
b. Individuals are rationally ignorant and free ride off of the politically informed.
c. Individuals form special interest groups to suppress those attempting to effect change.
d. The electoral college stifles grassroots movements at all levels.
Difficulty: Medium
Answer: b
27. Voters have an incentive to be rationally ignorant of most political issues because _____.
a. all candidates target the median voter
b. political information is costly
c. they are likely to be canceled out by another uninformed voter
d. their vote is highly unlikely to change the outcome
Difficulty: Medium
Answer: c
28. Special interests are _____ on political issues where they may receive concentrated benefits.
a. stable
b. cyclical
c. rationally ignorant
d. not rationally ignorant
Difficulty: Easy
Answer: d
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29. Consider a policy proposal that aims to save small dairy farms by providing an annual lump sum subsidy to
dairy farms with fewer than two hundred dairy cows. Why might this proposal pass, even if it benefits a
few dairy farmers at the expense of the majority of voters?
a. The program might only cost each voter a few pennies and yet benefit small dairy farmers
immensely.
b. The American people value the small dairy farm highly and want to see it preserved.
c. A cyclical majority makes it possible for the proposal to pass although it is not generally preferred.
d. Voters think it will result in cheap milk.
Difficulty: Hard
Answer: a
Section and/or page number: Special Interests, p. 167
30. Politicians face strong incentives to favor _____ over _____.

a. the rich; the middle class
b. special interests; the public interest
c. the rationally ignorant; special interests
d. the future; the present
Difficulty: Medium
Answer: b
Section and/or page number: Special Interests Versus The Public Interest, p. 168
31. Politicians have an incentive to favor short-run policies because _____

a. because voters suffer from myopia
b. of special interests
c. they may be voted out of office before long-run policies bear fruit
d. of rational ignorance
Difficulty: Medium
Answer: c
Section and/or page number: The Demand for Immediate Results, p. 169
32. Assuming that the median voter model accurately explains how public sector decision are made, resources
will be allocated efficiently if _____.
a. preferences are single-peaked and individuals prefer outcomes closer to their preferred outcome
rather than outcomes farther away
b. rational ignorance and cyclical majorities are not present
c. resources were already allocated efficiently in the private sector
d. the median voter’s demand is the same fraction of total demand as his tax share is of total taxes
Difficulty: Hard
Answer: d
Section and/or page number: Economic Efficiency and the Median Voter, p. 171
33. Efficiency of the median voter model outcome occurs when _____.
a. Lindahl pricing is employed.
b. a head tax is used to finance the policy
c. progressive taxation is used to finance government
d. special interests are non-existent
Difficulty: Medium
Answer: a
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34. If each voter pays taxes in proportion to her demand, then _____.
a. the median voter’s most preferred outcome will definitely occur
b. the condition for economic efficiency is satisfied
c. special interests will have no power
d. political institutions are optimal
Difficulty: Hard
Answer: b
True or False
35. The median voter model assumes that voters have single-peaked preferences.
a. True
b. False
Difficulty: Medium
Answer: a
36. In a committee, any outcome preferred by any member can win.

a. True
b. False
Difficulty: Medium
Answer: b
Section and/or page number: The Committee Process, p. 155
37. The referendum version of the median voter model allows voters to vote on a series of marginally
increasing quantities of a good.
a. True
b. False
Difficulty: Hard
Answer: b
38. If issues can be ranked along a one-dimensional continuum, a successful political candidate will be an
individual who is best able to align her political platform to the positions of the median voter.
a. True
b. False
Difficulty: Medium
Answer: a
Section and/or page number: The Decisive Median Voter, p. 159
39. In order to survive in political office, politicians must be steadfast in their convictions and be unwilling to
change their political platforms.
a. True
b. False
Difficulty: Easy
Answer: b
Section and/or page number: The Decisive Median Voter, p. 159
8-8
40. Elections tend to be closer when one candidate is extremely to the right or left.
a. True
b. False
Difficulty: Easy
Answer: b
41. Third parties do not elect large numbers of candidates in democratic countries with majority rule elections.
a. True
b. False
Difficulty: Medium
Answer: a
42. If voters do not have single-peaked preferences then a cyclical majority will arise.
a. True
b. False
Difficulty: Hard
Answer: b
43. When cyclical majorities arise, the winner of an election will be determined by the order in which the
choices are presented to the voters.
a. True
b. False
Difficulty: Easy
Answer: a
44. Voters have an incentive to become informed about political issues because the individual’s vote is likely
to affect the outcome.
a. True
b. False
Difficulty: Medium
Answer: b
Section and/or page number: Information and Incentives, p. 166
45. The likelihood of an individual’s vote being significant in a Presidential election is fairly high, especially if
they live in a swing state.
a. True
b. False
Difficulty: Easy
Answer: b
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46. The simple median voter model is unbiased with respect to special interests.
a. True
b. False
Difficulty: Hard
Answer: b
Section and/or page number: Special Interests Versus the Public Interest, p. 168
47. In economic models of the public sector, the median voter model presents an extreme view of the way that
the public sector allocates resources.
a. True
b. False
Difficulty: Hard
Answer: a
Section and/or page number: The Median Voter Model and Political Competition, p. 170
48. A gasoline tax to finance highways is a fairly good example of democratic decision-making resulting in the
efficient level of output.
a. True
b. False
Difficulty: Medium
Answer: a
Section and/or page number: Economic Efficiency and the Median Voter Model, p. 171
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Essay/Short Answer Questions
49. What is the primary prediction of the median voter model? List the two key assumptions of the median
voter model regarding the preferences of voters.
Difficulty: Easy
Answer: The median voter model examines collective decision-making by majority rule and concludes
that a majority rule voting system will select the outcome preferred by the median voter. The first key
assumption of the median voter model is that voters are assumed to be able to place all possible election
outcomes along a one-dimensional continuum. The second key assumption is that voters have single-
peaked preferences. That is, they prefer outcomes closer to their preferred outcome to outcomes farther
away from their preferred outcome.
50. Draw a median voter model of a representative democracy with two candidates, one on the political right
and one on the political left. Use your graph to help you explain why politicians are likely to have similar
stances on issues.
Difficulty: Hard
Answer:
The model of representative democracy shows two politicians, one with a platform on the political right
and the other whose platform lies on the political left. For the politician on the right, all voters to the right
of her platform will vote for her (if they vote). The same is true for voters to the left of the politician on the
left. Thus the way to attract more voters is to move towards the median voter. Both politicians face the
same incentive; hence, both politicians will move their platforms toward the median voter, explaining why
politicians are likely to have similar stances on issues.
Section and/or page number: Representative Democracy, p. 158
51. Can the median voter model help explain why third parties have generally not been successful in the
United States? Explain why or why not.
Difficulty: Medium
Answer: Yes, the median voter can help explain why third parties have generally not been successful in
the United States. Under a majority rule system where all possible outcomes can be placed along a one-
dimensional continuum, candidates must converge on the median voter if they want to win election to
public office. An introduction of a third party, almost by definition, will leave two parties on one side of
the median. These two parties will split the votes on that side of the median and ensuring that the party on
the other side of the median will win, making three party systems unviable in the long run.
52. Under what conditions might the median voter’s preferred outcome not be selected through majority rule?
Difficulty: Medium
Answer: The median voter’s preferred outcome might not be selected through majority rule if one or
more voters have multiple-peaked preferences. That is, a particular voter might prefer an outcome farther
8-11
away from his preferred outcome to one closer to his preferred outcome. This opens the possibility that
there are many possible majority rule outcomes.
53. List and describe two issues regarding incentives and information that explain why the median voter model
might not accurately describe democratic decision-making.
Difficulty: Hard
Answer: Rational ignorance and special interests are two of the primary reasons why the median voter
model might not accurately describe the results of democratic decision-making. Rational ignorance occurs
because one vote has almost no incentive to change the outcome of an election so voters have little
incentive to collect information to cast an informed vote or even to vote at all. Special interests occur when
smaller groups have an incentive to become informed about political programs that provide them with
concentrated benefits.
Section and/or page number: Information and Incentives, p. 166
54. Assuming that the two key restrictions on preferences fundamental to the median voter model hold, list the
condition that must be satisfied for the outcome preferred by median voter to be considered economically
efficient. List one real world example that comes close to this condition.
Difficulty: Hard
Answer: In order for the outcome preferred by the median voter to be economically efficient, the median
voter’s share of the total demand for the good must equal the median voter’s tax share. One real world
example that approximates this condition is gasoline taxation that pays for highway funding.
8-12

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Public Sector Economics The Role Of

Government In The American Economy

2. Which of the following is an assumption of the median voter model?

3. The conclusion of the median voter model is that_____.

4. Which of the following is not an assumption of the medium voter model?

9. The median voter model predicts that in a representative democracy _____.

22. Voters who do not have single-peaked preferences _____.

30. Politicians face strong incentives to favor _ over _.

31. Politicians have an incentive to favor short-run policies because _____

36. In a committee, any outcome preferred by any member can win.

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