Question 1

What are quasi-public goods and why does the government provide them?

Accepted Answer

Quasi-public goods are goods provided by the government that fit the economist's definition of a public good but can be produced in such a way that exclusion would be possible.Such quasi-public goods include education, streets and highways, police and fire protection, libraries and museums, preventive medicine, and sewage disposal.They could all be priced and provided by private firms through the market system.But because they all have substantial positive externalities, they would be underproduced by the market system.Therefore, government often provides them to avoid the underallocation of resources that would otherwise occur.

Question 2

Assume the atmosphere of an urban area is able to reabsorb 8,000 tonnes of pollutants per year.The schedule below shows the price polluters would be willing to pay for the right to dispose of 1 tonne of pollutants per year and the total quantity of pollutants they would wish to dispose of at each price.   (a) If there were no emission fee, how many tonnes of pollutants would there be and how much greater would this amount be than the capacity for re-absorption?
(b) What pollution fee should the urban authorities charge to solve the problem?
(c) What would happen in this market for pollution rights if quantity demanded increased by 1,000 tonnes at each price?

Accepted Answer

(a) If there were no emission fee, polluters would put 13,000 tonnes of pollutants in the air each year.This quantity of pollutants would exceed the ability of nature to reabsorb them by 5,000 tonnes.
(b) To reduce pollution to the capacity of the atmosphere to recycle pollutants, an emission fee of $5,000 per tonne should be set and total emission fees would be $40 million [8,000 * $5,000].
(c) If the quantity of pollution rights demanded at each price were to increase by 1,000 tonnes, the emission fee could be increased by $1,000 to $6,000 and total emission fees collected would be $48 million [8,000 * $6,000].

Question 3

How is consumer surplus derived from a demand curve?

Accepted Answer

Consumer surplus is the area under the demand curve and above the market price.

Question 4

What resource problem is created by negative externalities and what methods are suggested for dealing with this problem?

Accepted Answer

When spillover costs arise in production

Question 5

Evaluate.Economy in government requires that government minimize its spending.

Accepted Answer

Economy in government refers to governme

Question 6

What resource problem is created by positive externalities and what methods are suggested for dealing with this problem?

Accepted Answer

When there are spillover benefits in the

Question 7

The next three questions refer to the below supply and demand graph for a public good.   (a) What does point c represent?
(b) What does the line segment ef at output Q3 represent?
(c) At what output level is there an underallocation of resources to the production of this public good?

Accepted Answer

(a) Where the marginal benefit of an add

Question 8

How does the market demand curve for a public good differ from the market demand curve for a private good?

Accepted Answer

The demand curve for the private good is

Question 9

Draw a market demand curve and indicate the following:
(a) The market price;
(b) The quantity demanded;
(c) The maximum amount that buyers are willing to pay for the quantity demanded;
(d) The actual amount that buyers must pay for the quantity demanded;
(e) The consumer surplus from obtaining the quantity demanded.

Accepted Answer

(a) P, (b) Q, (c) ar

Question 10

What are negative and positive externalities? How do they affect supply and demand curves?

Accepted Answer

Negative externalities or spillover cost

Question 11

Imagine that a provincial government is considering the construction of a new office building to consolidate its operations.Its estimate of the total costs and the total benefits of building a 4- 6-, 8-, or 10-story building is shown in the table below.(All figures are in millions of dollars.)
   (a) Compute the marginal cost and the marginal benefit of the 4-, 6-, 8-, and 10-story buildings.(b) Should the state build a new office building? If so, what size building and what will be the total benefit, total cost, and net benefit to society?

Accepted Answer

(a) See table above
(b) Yes, the governm

Question 12

Draw a market supply curve and indicate the following:
(a) The market price;
(b) The quantity supplied;
(c) The minimum amount that sellers are willing to accept for the quantity supplied;
(d) The actual amount that sellers receive for providing the quantity supplied;
(e) The producer surplus from providing the quantity supplied.

Accepted Answer

See graph above (a)

Question 13

Evaluate: "Pollution is undesirable.Therefore, all pollution should be banned."

Accepted Answer

The economist would argue that it is nec

Question 14

How is producer surplus derived from a supply curve?

Accepted Answer

Producer surplus is

Question 15

How are producer surplus and economic profit related?

Accepted Answer

Profit is equal to total revenue less to

Question 16

Explain the difference between a public and private good.Describe the rationale behind supply and demand analysis for public goods.

Accepted Answer

A public good is one, which is not subje

Question 17

Demand in a market is represented by the equation, P = 30 - .5QD.Suppose the market price is $18.(a) How many units do buyers wish to purchase in this market?
(b) What is the maximum amount that the buyers are willing to pay for this quantity of output?
(c) What is the actual amount that buyers have to pay for this quantity of output?
(d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?

Accepted Answer

(a) 24 units; (b) $5

Question 18

How could you use the Coase theorem to predict what would happen when smoke from a factory created dirty air and slightly acid rain for all the residents in the area in a one-kilometre radius of the plant?

Accepted Answer

Under the assumptions of the Coase theor

Question 19

Demand in a market is represented by the equation, P = 50 - QD.Suppose the market price is $30.(a) How many units do buyers wish to purchase in this market?
(b) What is the maximum amount that the buyers are willing to pay for this quantity of output?
(c) What is the actual amount that buyers have to pay for this quantity of output?
(d) What is the consumer surplus that buyers obtain from purchasing this quantity of output?

Accepted Answer

(a) 20 units; (b) $8

Question 20

What is the economic rationale for liability rules and lawsuits? What are the limitations with this approach?

Accepted Answer

Liability rules help to specify property

Exam 4: A: - Market Failures: Public Goods and Externalities

What are quasi-public goods and why does the government provide them?

How is consumer surplus derived from a demand curve?

What resource problem is created by negative externalities and what methods are suggested for dealing with this problem?

Evaluate.Economy in government requires that government minimize its spending.

What resource problem is created by positive externalities and what methods are suggested for dealing with this problem?

The next three questions refer to the below supply and demand graph for a public good. (a) What does point c represent? (b) What does the line segment ef at output Q3 represent? (c) At what output level is there an underallocation of resources to the production of this public good?

How does the market demand curve for a public good differ from the market demand curve for a private good?

What are negative and positive externalities? How do they affect supply and demand curves?

Evaluate: "Pollution is undesirable.Therefore, all pollution should be banned."

How is producer surplus derived from a supply curve?

How are producer surplus and economic profit related?

Explain the difference between a public and private good.Describe the rationale behind supply and demand analysis for public goods.

How could you use the Coase theorem to predict what would happen when smoke from a factory created dirty air and slightly acid rain for all the residents in the area in a one-kilometre radius of the plant?

What is the economic rationale for liability rules and lawsuits? What are the limitations with this approach?

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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