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Our ability to manage Social Security as a "pay-as-you-go" program (in which taxes collected from those currently working are used to make benefits payments to those currently retired) is impaired when the "dependency ratio" (defined as the number of retirees per worker) increases. The current concern about the stability of Social Security is primarily based on projections that there will many more retirees per worker when the baby boomers begin to retire. Then, if we want to maintain a pay-as-you-go system, we can:
A) reduce benefits to compensate for the increase in the dependency ratio.
B) raise benefits to compensate for the increase in the dependency ratio.
C) maintain current benefit levels with no changes to how social security is financed.

Basic research is more likely to be funded by the federal rather than state and local government because basic research:
A) is usually conducted by oligopoly, the market structure that is most conducive to preliminary research.
B) has negative externalities that are passed on to those who live outside the state.
C) is largely a public good; benefits flow to the whole world, not just the state.
D) has information problems that cause adverse selection.

At one time many economists were suspicious of brand names. They saw them as a barrier to entry with no benefits to consumers. In the 1970s economists began to see a possible benefit of brand names to consumers. They discovered that brand names were a way to:
A) signal quality.
B) market public goods.
C) overcome negative externalities.
D) overcome the free-rider effect.

The Consumer Product Safety Commission (CPSC) is charged with protecting the public from unreasonable risks of serious injury or death from more than 15,000 types of consumer products. The CPSC is designed to overcome:
A) direct regulation.
B) positive externalities.
C) negative externalities.
D) information problems.

Both opponents of and proponents of government intervention would most likely agree with which of the following?
A) Government can and does create proper incentives to correct for externalities.
B) Property rights eliminate the need for government.
C) The market is inherently fair.
D) Property rights must exist for a market to operate.

Government failure occurs when:
A) government fails to implement policy designed to correct a market failure.
B) government intervention in the market to improve a market failure succeeds.
C) government intervention in the market to correct a market failure actually makes things worse.
D) there is no need for government intervention into the market because there is no market failure.

Government failure is likely to occur for all of the following reasons except:
A) special interest groups might lobby government to the detriment of the public good.
B) individuals have better information about a situation that affects them than government.
C) intervention in markets is always simpler than it initially seems.
D) the bureaucratic nature of government intervention does not allow fine-tuning

A government policy maker is trying to decide which of four methods of reducing highway noise in a residential area should be implemented. He is looking at these four options:
Plan A - Benefits $500,000 - Costs $490,00
Plan B - Benefits $550,000 - Costs $530,00
Plan C - Benefits $570,000 - Costs $540,00
Plan D - Benefits $600,000 - Costs $580,00
If he uses the cost-benefit logic of economics, which plan will he propose?
A) Plan A
B) Plan B
C) Plan C
D) Plan D

The U.S. government does not allow toggle switches for power windows in automobiles. The National Highway Traffic Safety Administration found that the regulation will save about two children every three years and have negligible costs because the industry will have plenty of time to incorporate new switches into future vehicles. Evaluating this new rule in terms of costs and benefits, an economist would most likely conclude that:
A) it was a good decision because the benefits exceed the costs.
B) it fails because it should take effect immediately not after four years.
C) it is a bad decision because the chances of a child dying (less than one per year) are so small that they can be ignored.
D) we cannot tell if it is a good decision without knowing the ages of the children who might be saved by the regulation.

The cost of repositioning an automobile gas tank for greater safety is $11 per vehicle for 12.5 million vehicles. It is expected that 180 deaths will occur if the gas tank location is not re-designed. Failure to re-design the gas tank location therefore implies that the automobile company is implicitly valuing human life at:
A) exactly $500,000.
B) more than $736,889.
C) less than $736,889.
D) more than $1,000,000.

U.S. government laws limit the importation of sugar into the United States. As a result, the U.S. price of sugar is about three times as high as the world price of sugar. U.S. sugar producers strongly support these rules. How would most economists explain this policy?
A) It is an example of a form of sin tax intended to help people with a self-control problem involving sweets.
B) It illustrates the public-choice view that small gains concentrated to a few producers can be more important politically than large losses spread over many consumers.
C) The policy is a way of solving an income distribution problem; it redistributes from the rich to the poor.
D) It is an example of the government using cost-benefit analysis to correct a market failure

Plan A - Benefits $500,000 - Costs $490,00
Plan A - Benefits $500,000 - Costs $490,00
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Our ability to manage Social Security as a "pay-as-you-go" program (in which taxes
collected from those currently working are used to make benefits payments to those
currently retired) is...