Study Guide for Exam #1
1. [Given some scenario concerning an action by a person, be able to:]
Determine whether the behavior should be considered rational. In your
answer, be sure to [1] describe what is meant by rational behavior and [2]
discuss why you believe the behavior described in the scenario should or
should not be considered rational.
2. Discuss Laswell’s, Easton’s, and Feagin’s definition of politics.
3. Outline and discuss public policy’s five defining characteristics.
4. Discuss the five stages of the policy-making process (the production line
model). Outline the activities and actors that may be involved in each stage.
5. Describe what a market is. Identify at least one possible alternative to markets
for allocating scarce resources. Discuss what is meant by an efficient
outcome. Explain why markets generally produce outcomes that at least as
efficient as any other means of allocating resources.
6. Using economic concepts discussed in class, indicate and discuss three
reasons government makes public policy. Specifically, discuss government’s
role in providing public goods and services, countering externalities, and
dealing with the problems of adverse selection and moral hazard. Distinguish
between pure public goods and pure private goods. Provide examples of
each. Explain the free-rider problem. Distinguish between positive and
negative externalities. Provide examples of each. What actions might
government take to counter each? What is adverse selection? What is moral
hazard? Provide examples. How might government deal with the adverse
selection/moral hazard problems?
7. Identify and discuss the basic tenets of capitalism.
8. Why is the American economy considered a “mixed economy”?
9. Discuss two broad types of economic functions performed by government,
providing examples of each.
10. Explain when government should pursue an expansionary fiscal policy and
when it should pursue a contractionary fiscal policy according to Keynesian
economic theory. Discuss what each of these entail. Outline the timing and
political problems encountered when applying fiscal policy in the “real world.”
11. Explain the criticism of expansionary fiscal policy that arises from the
Ricardian Equivalence Theorem.
12. What do economists mean by the “crowding-out effect”? What are its
implications for an expansionary fiscal policy?
13. Identify the following:
-free-rider problem
-divisibility of a good
-command socialism
-excludability of a good
-positive externality
-command capitalism
-negative externality
-pure public good
-pure private good
-merit good
-mixed economy
-market capitalism
-progressive tax
-pure capitalism
-regressive tax
-centrally-planned economy
-”crowding-out effect”
-Keynesian economics
-Ricardian Equivalence Theorem
-monopoly
-”natural” monopoly
-market socialism
-laissez-faire capitalism
-reservation price
-efficient outcome
-deadweight loss
-consumer’s surplus
-head tax
-positive theory
-normative theory
-incentives
-rational behavior
-econometrics
-good
-preferences
-empirical analysis
-model
-policy outputs
-public agenda
-official agenda
-policy statements
-legitimacy
-implementing actions
-authoritative government
-free-rider problem
-monetarist economic theory-classical economic theory
MISCELLANEOUS BITS OF INFORMATION TO BEAR IN MIND:

Do NOT hesitate to ask questions of the instructor concerning any of the information you do
not understand. The best time to ask questions is before rather than after the exam. Of
course, during the exam is completely out of the question!

It is the view of the instructor that the best way to prepare for the exam is to spread your
studying out over the course of several study sessions. “Cramming” or setting aside a single
block of time to study, regardless of the length, usually does not promote genuine
understanding of concepts, themes, or major emphases.

This study guide is quite detailed. It has been prepared to include the major themes,
concepts, and emphases covered in class, as well as specific information from class lectures.

Take full advantage of this study guide. I advise you to write out answers to ALL of the
questions on this study guide, in as complete fashion as you would if you were writing
answers for the actual exam. Then, study the answers you have written as opposed to
studying from your notes. Of course, the gamblers among you will attempt to determine which
questions they believe are likely to appear on the actual exam and only prepare answers to
those questions. The questions that you will see on the exam are included in the study guide
before you. It is up to you to utilize it in the way that maximizes your benefit. In short, the
exam will essentially be a test of your preparation! Therefore, if you choose not to prepare
yourself and do poorly, you have no one to blame except yourself; nothing to fear but fear
itself; make your bed, now lie in it; dance with them that brung ‘ya; to get along, go along; the
squeaky wheel gets the grease; ‘tis better to give than to receive; spare the rod, spoil the
child; ask not what your country can do for you, rather ask what you can do for your country;
the early bird gets the worm; a rolling stone gathers no moss; it’s better to be hacked off than
hack-sawed;

Use the space below to add your own hackneyed expressions and useless clichés: