Chapter 11

Question 1

government failure

Answer 1

a situation in which Total Social Surplus is decreased by
government intervention in a market

Question 2

public choice

Answer 2

academic subfield which uses the tools and framework of economics
to analyze issues that historically fall within the domain of political science

Question 3

Condorcet Paradox

Answer 3

a situation in which a series of pair-wise majority votes over
more than two options leads to a cycling of winners
▪ first formalized in the 18th century by Nicolas de Condorcet
▪ when such a cycle occurs, it reveals that social preferences are irrational (i.e., not
clearly defined) since they are non-transitive (i.e., internally non-consistent or
internally contradictory)

Question 4

economic calculation problem

Answer 4

the argument that a system of planning will never be
able to achieve efficient outcomes, precisely because under such a system the planners
do not have the information generated by market activities available to them
▪ first made by Ludwig von Mises and later refined by Friedrich von Hayek

Question 5

costs of complying with government bureaucracy

Answer 5

when governments impose
rules/regulations, individual households and firms need to expend resources to comply
with the policies
▪ use of resources for compliance imposes a cost => the greater the bureaucracy, the
higher are these costs => if the costs are sufficiently large, they will outweigh any
benefits of the regulation

Question 6

corruption

Answer 6

an environment in which regulations are not enforced and decisions are
not made evenly and without bias => corruption leads to inefficient decisions

Question 7

kleptocracy

Answer 7

an environment of extreme corruption in which government officials
unabashedly seek personal gain at the expense of the public interest

Question 8

regulatory capture

Answer 8

a situation in which firms in a regulated industry influence a
regulatory agency to the point where the agency enacts policies that are in the best
interest of the regulated firms (even if the decisions are not in the best interest of the
public)

Question 9

rent seeking

Answer 9

attempts by people to manipulate government action or influence
government decisions in order to make themselves better off at the expense of others

Question 10

logrolling

Answer 10

the process by which a legislator votes to approve one bill in exchange for
favorable votes from other members on other bills
▪ not necessarily a “bad thing” => logrolling can be potentially beneficial, since it
allows for an expression of “intensity of preference”
▪ but, particularly when voters are “rationally ignorant,” the process can give rise to
inefficient outcomes

Question 11

rational ignorance

Answer 11

since becoming informed on matters of public policy has
high costs and low benefits for individual voters, it is rational for them to remain
uninformed

Question 12

incidence of a tax

Answer 12

a measure of who bears the burden of a tax in terms of decreased
welfare