5. What is the correct criterion in evaluating government programs?
A. The size of government: A larger government provides more goods.
B. The size of government: A smaller government has lower taxes.
C. By comparing the marginal benefit to the marginal cost of the government program. If the marginal benefit exceeds the marginal cost this is an efficient program.
D. By comparing the marginal benefit to the marginal cost of the government program. If the marginal cost exceeds the marginal benefit this is an efficient program.

Question

5.    What is the correct criterion in evaluating government programs?
A.    The size of government: A larger government provides more goods.
B.    The size of government: A smaller government has lower taxes.
C.    By comparing the marginal benefit to the marginal cost of the government program. If the marginal benefit exceeds the marginal cost this is an efficient program. 
D.    By comparing the marginal benefit to the marginal cost of the government program. If the marginal cost exceeds the marginal benefit this is an efficient program.

BlackTom AI · Accepted Answer

Marginal analysis is the correct framework: compare the additional (marginal) benefit of one more unit of a program to its additional (marginal) cost. Define marginal benefit (MB) as the extra social value gained from one more unit of the program, and marginal cost (MC) as the extra cost (including opportunity cost) of providing that unit. Step-by-step reasoning: 1. For any incremental change, compute net marginal gain = MB − MC. 2. If MB − MC > 0 (i.e., MB > MC), adding that unit raises total social welfare, so the program expansion is desirable. 3. If MB − MC < 0 (i.e., MB < MC), adding that unit reduces total welfare, so the program should be scaled back. 4. The allocation is efficient at the margin where MB = MC; that is the stopping point where no further net gains are possible. Practically, we expand the program while MB > MC and stop when MB = MC. Simple algebraic intermediate step: - Net marginal benefit = MB − MC. - Decision rule: choose the program expansion if MB − MC > 0. Why C is correct: Option C states the decision criterion directly: compare marginal benefit to marginal cost and accept the program (or additional units) when marginal benefit exceeds marginal cost. That exactly matches the marginal analysis and efficiency condition described above. Why other options are incorrect: - A (larger government provides more goods) and B (smaller government has lower taxes) are descriptive about size, not efficiency criteria; size alone doesn’t tell whether programs produce net social benefits. They ignore marginal trade-offs and opportunity costs. - D reverses the correct rule: saying a program is efficient when marginal cost exceeds marginal benefit would imply choosing actions that reduce welfare. Conclusion: The correct criterion is given in C. This matches the provided answer: C.

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