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Chapter 5: Q9. (page 114)

Explain: 鈥淧oliticians would make more rational economic decisions if they weren鈥檛 running for re-election every few years.鈥�

Short Answer

Expert verified

If politicians weren鈥檛 running for re-election every few years, there would be no purpose to accommodate practices like rent-seeking, special-interest effect, incorrect regulation of resources, etc. Therefore, the politicians will make more rational economic decisions.

Step by step solution

01

Explanation for rational economic decision making by politicians when no re-election happens

Self-interest often influences the decision-making of politicians. They make decisions that fulfill their desired goals. Their main goal is to be reelected so they can make more money. Therefore, politicians adopt practices like rent-seeking, inefficient management of resources, incorrect regulation of markets, and corruption.

The small groups with shared interests try to either bribe or appeal to the politicians to support their advantage in exchange for help in elections. In the process, the economic efficiency suffers many times. Since the elections happen every few years, the politicians have set targets. To fulfill those targets, politicians make irrational economic decisions.

02

Example explaining how no re-elections affect the decision making of politicians

The following example will help understand what effects a no re-election will have on politicians鈥� decision-making.

A group of private railway companies operating in the US comes to the government to appeal for some favor. They ask the government to reduce the tax rate unreasonably in large amounts for fuel purchases. The politicians will agree with the companies if they provide them with the necessary support for the upcoming elections.

In this practice, the fuel price will decrease, and the government will fall short of the budget. The irrational economic decision by the politicians will result in a loss of economic efficiency.

However, if there were no re-elections, the politicians would have no self-interest in reducing the taxes. Therefore, the politicians will not reduce the taxes unreasonably and will make more economically rational decisions.

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Most popular questions from this chapter

Use your demand schedule for the public good, determined in problem 1, and the following supply schedule to ascertain the optimal quantity of this public good.

Price (\()
Qd
191
162
133
104
75
46
27
18
Price (\))Qs
1910
168
136
104
72
41
2-
1-

Draw a production possibilities curve with public goods on the vertical axis and private goods on the horizontal axis. Assuming the economy is initially operating on the curve, indicate how the production of public goods might be increased. How might the output of public goods be increased if the economy is initially operating at a point inside the curve?

Consider a specific example of the special-interest effect and the collective-action problem. In 2012, it was estimated that the total value of all corn-production subsidies in the United States was about \(3 billion. The population of the United States was approximately 300 million people that year.

a. On average, how much did corn subsidies cost per person in the United States in 2012? (Hint: A billion is a 1 followed by nine zeros. A million is a 1 followed by six zeros.)

b. If each person in the United States is willing to spend only \)0.50 to support efforts to overturn the corn subsidy, and if anti-subsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts?

c. If the recipients of corn subsidies donate just 1 percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy?

d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

We can apply voting paradoxes to the highway construction example of Table 5.2. Suppose there are only five people in a society, and each favors one of the five highway construction options listed in Table 5.2 (鈥淣o new construction鈥� is one of the five options). Explain which of these highway options will be selected using a majority paired-choice vote. Will this option be the optimal size of the project from an economic perspective?

Plan
Total cost of project (\()
Marginal cost (\))
Total Benefit
Marginal Benefit
Net Benefit (TB-TC)
No new construction
0-0--
A: Widen existing highways
5050200200150
B: New 2-lane highways
14090350150210
C: New 4-lane highways
240100470120230
D: New 6-lane highways
620380580110-40

Look back at Figures 5.2a and 5.2b, which show the costs and benefits to voters Garcia, Johnson, and Lee of two different public goods that the government will produce if a majority of voters support them. Suppose that Garcia, Johnson, and Lee have decided to have one single vote at which the funding for both of those public goods will be decided simultaneously.

a. Given the $300 cost per person of each public good, what are Garcia鈥檚 net benefits for each public good individually and for the two combined? Will she vote yes or no on the proposal to fund both projects simultaneously?

b. What are Lee鈥檚 net benefits for each public good individually and for the two combined? Will she vote yes or no on the proposal to fund both projects simultaneously?

c. What are Johnson鈥檚 net benefits for each public good individually and for the two combined? Will he vote yes or no on the proposal to fund both projects simultaneously鈥攐r will he be indifferent?

d. Who is the median voter here? Whom will the two other voters be attempting to persuade?
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