Exam 8: Market Failure Versus Government Failure

This table shows the marginal benefits from widgets obtained by the only three people who value them. Suppose widgets cost $8.50 to produce. If widgets are a private good, how many will be produced by market incentives, and is that the right (efficient) number?

Refer to the graph shown. There is a negative externality associated with the production of the good depicted. The socially efficient level of output is:

If a consumer is willing to pay $5,000 for a used car that is a free of mechanical problems and $1,000 for a used car that will require extensive repairs, the consumer will offer:

Under the Texas law known as "rule of capture," land owners "get to pump as much of the water under it as they want. . .. 'This means whoever sucks it out first, it's their water'-even if that means there isn't enough left for others." Under this law, pumping large amounts of water:

The Environment Ministry in Japan proposed a new carbon tax to meet Japan's obligations to reduce carbon dioxide emissions under the Kyoto Treaty. The tax would be levied on producers and importers of fossil fuels and raise the cost of using fossil fuels. How do most economists view a tax such as this?

Some economists believe that the market will not solve all problems. They are referring to:

Carbon dioxide emissions are thought to contribute to global warming, and there is a concern that changes in climate will be costly. Emitting carbon dioxide is an example of:

The following table shows four firms, the amount each pollutes, the marginal cost for each firm to clean up pollution, and the total cost to each firm of eliminating all pollution. Firm Total Discharge (in tons) Marginal Cost of Cleanup (per ton) Total Cost of Cleanup A 60 \ 5.00 \ 300 B 70 \ 8.00 \ 560 C 80 \ 7.50 \ 600 D 90 \ 4.00 \ 360 The total discharge of these four companies is 300 tons. Assume there is no one else who pollutes. Suppose that the government gives each company a pollution permit equal to 50 percent of its present discharge. However, companies are allowed to reduce pollution more than 50 percent and sell their permit or reduce less than 50 percent and buy a permit from another company. If firms maximize profits, what would happen?

In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce use of fossil fuel, but local chapters of the Nature Conservancy say they will befoul the landscape. An argument that supports the Sierra Club position is that that wind turbines:

A life insurance company is likely to require a health examination of a person applying for insurance. This helps reduce the informational problem through the process of:

The basis of the argument favoring government intervention to correct informational and rationality problems is that:

If a corrective tax on gasoline results in the efficient output of gasoline by internalizing negative externalities associated with pollution:

Suppose that government wants a policy that will encourage people to use less oil. For this policy to be efficient, it must:

Do economists tend to favor a system in which power plants buy and sell the right to pollute in the form of emission credits?

The reason the Federal Trade Commission regulates advertising to prevent false and misleading claims is:

Alex is playing his music at full volume in his dorm room. The other people living on his floor are enjoying his music, but Alex does not know or care. Alex's music playing is an example of a:

Government may not have an incentive to correct a market failure because:

The unwillingness of individuals to share in the cost of a public good is called the:

Economists' attitude toward voluntary programs causes them to:

Suppose Mary finds it easier to conserve than Jim does. The difference between a tax incentive program and a marketable certificate plan in this case is that: