Study Questions For The Second Exam
Public Sector Economics
These questions are not designed to take the place of studying your notes and the reading assignments. Do not e-mail me and ask me to answer all or some of these questions for you. If you have missed class, it is your responsibility to get the notes from another student. Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not. Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first. Make sure you have done all of the reading assigned. Also, pay attention to the homework questions and the exercises we have done in class when studying.
Topic: Public Choice Part One - The Public Choice Revolution (Gwartney and Wagner)
Public choice economists always assume people act how?
Who are the actors in the political process?
Before "public choice" came about - most economists treated government as what?
Some economists recognized that the real world was very different from what they thought the outcomes of the government process should be (this relates to the above question). How was it different?
What answer did the public choice economists give (broadly speaking) to what you answered in the above question.
What does the "violence of faction" mean? Explain.
Public choice economists see a lot of problems with democracy. One of those problems is rent-seeking. What is rent-seeking and how/why does it contribute to economic stagnation (inefficiency)? Example?
Has rent-seeking increased in the U.S.? Measured how?
When are we more likely to see rent seeking take place in democracy (according to our discussions)? Can you relate this to the "violence of faction" theory?
What is rational ignorance as related to voting?
What does Brian Caplan mean by "rational irrationality"? His arguments says we should put less blame for problems in democracy on special interests - explain.
Why are politicians generally "short-sighted?"
What is a special interest group - why politicians pay so much attention to them?
Why are government bureaus (generally speaking) inefficient? Provide one reason.
Gwartney and Wagner claim that there is both bad and good news that flows from public choice analysis. What is the bad news? What is the good news?
How would Gwartney and Wagner change the political structure such that the self interest of political players would come into harmony with the betterment of people in general?
Topic: Public Choice: Rent Seeking (Highlighted were not covered).
What does it mean to earn an economic rent?
What is Tullock's definition of rent seeking?
According to Tullock and other economists, there are differences (in social outcomes) between rent seeking and profit seeking. What are they?
What is a "natural monopoly" (theoretically)? Graph? Criticize the theory.
Is "socially harmful rent seeking" limited to government policy? Explain and Examples?
Tullock originated the theory of rent seeking by using the standard theory of a monopolist vs. a competitive industry. Graphically and in words be able to describe the standard welfare or deadweight loss from a monopolist (understand consumer and. producer surplus in the model). Where is this loss coming from?
Tullock then added to this model by including the loss from rent seeking. Graphically and words explain this loss.
What is "rent protection" (or avoidance)?
What is an excise tax?
What does it mean to levy a tax?
What does "tax incidence" mean?
Graphically and in words explain the welfare or deadweight loss from an excise tax and then where and how rent avoidance can also be explained in this model.
Given that rent avoidance exists, what conclusion regarding excise taxes might economists come up with? Does it matter if demand is more inelastic? Explain.
A complete analysis of losses due to monopolies, taxes, etc. should include what?
What are Tullock's four direct costs of rent seeking we discussed in class? Graph - for one of these.
What is Tullock's indirect cost of rent seeking we discussed in class?
How could the system possibly be changed to decrease the costs of rent seeking?
Some might think that rent seeking evens out income in the economy - however, public choice economists contend that that probably isn't true. Why?
Make sure you understand the complete concept of rent seeking and its costs to society.
What were Pasour's criticisms of the mainstream theory of monopoly and of Tullock's theory regarding the loss from rent seeking in the mainstream model?
Make sure you look over the in class exercises, the homework, and the readings.