Some Economists Who Use the Public Choice Model to Explain

question 86

Multiple Choice

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product.Which of the following is the best example of regulatory capture?

• A)The Food and Drug Administration (FDA)has increased the time and expense pharmaceutical firms incur to receive approval to market a new drug.
• B)A federal government agency hires more employees than it requires to regulate an industry because it does not seek to minimize costs or maximize the agency's profits.
• C)The head of an agency is required to testify before Congress because Congress controls the size of the agency's budget. Congress "captures" the agency because of its budget authority.
• D)Firms that were regulated by the Interstate Commerce Commission (ICC)attempted for many years to influence the ICC's actions.

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Definitions:

Reciprocal Method

An accounting method used for allocating costs between interdependent departments, accurately reflecting the shared services costs.

Mutual Provision

Mutual provision relates to the sharing or exchange of services, resources, or benefits between parties, often within a cooperative or collaborative framework.

Support Department Cost Allocation

The process of distributing indirect costs from support departments, such as Human Resources or IT, to operational departments or product lines.

Dual Cost Allocation

A method of cost allocation that involves assigning costs to two or more objects without arbitrarily dividing them.