How does the principle of minimum differentiation relate to the free-rider problem?
What will be an ideal response?
The free-rider problem requires that the government intervene so that an efficient level of a public good is produced. Often the government itself provides the public good. In this case, politicians are the government officials that are responsible for deciding which and what amounts of public goods are produced. In order to collect the most votes, politicians choose policies proposing the provision of certain public goods that are similar to competing politicians. The tendency for competitors to choose similar policies is the principle of minimum differentiation. In this case, the principle of minimum differentiation means that political parties propose to produce similar quantities of public goods because these proposals attract the maximum number of votes.
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Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:
a. the demand for new homes has risen. b. the law of demand has been violated. c. new firms have entered the construction industry. d. construction firms must be facing higher costs.
When U.S. residents buy foreign assets from foreigners, the ______.
a. monetary outflows provide foreigners with U.S. dollars b. purchases are recorded as debits in the current account c. monetary inflows provide U.S. residents with foreign currency d. purchases are recorded as credits in the financial account
Which of the following statements is true of a country that has a gold standard exchange rate system?
A. A country running a deficit in its balance of payment would experience an outflow of gold which would force it to increase the price of gold. B. A country running a deficit in its balance of payment would experience an outflow of gold which would force it to decrease the price of gold. C. A country running a deficit in its balance of payment would experience an outflow of gold which would force it to reduce its money supply. D. A country running a deficit in its balance of payment would experience an outflow of gold which would force it to increase its money supply.
The marginal benefit of an additional beach towel is $12. The marginal cost of producing an additional beach towel is $8. If producers are minimizing the average costs of production, then we can conclude:
A. beach towel production is allocatively efficient than not productively efficient. B. Beach Tower production is not allocatively efficient but is productively efficient. C. beach towel production is neither allocatively nor productively efficient D. beach towel production is both allocatively and productively efficient