Exam 8: Market Failure Versus Government Failure

At one time many economists were suspicious of brand names. They saw them as a barrier to entry with no benefits to consumers. In the 1970s economists began to see a possible benefit of brand names to consumers. They discovered that brand names were a way to:

Refer to the graph shown. The price and quantity that would prevail if all social costs and benefits were taken into account is:

The rule for making optimal decisions is that an activity should be increased until:

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 public good, how many will be produced by market incentives, and is that the right (efficient) number?

The optimal quantity of pollution control occurs at the point where the:

If buyers cannot distinguish between "lemons" and "cherries" in the used car market but sellers can, the price buyers are willing to pay for used cars will be:

If government action is likely to do some good, it is always best for government to intervene in the marketplace.

Economists are most likely to suggest that societies address the inefficiencies created by negative externalities by:

If a market has no externalities, marginal private costs:

In economics, the term "signaling" refers to a way of lessening the problem of:

An optimal corrective tax levied on polluters will:

The best example of a public good is:

If once vaccinated, a person cannot catch a cold or give a cold to someone else, the marginal social benefit resulting from consumption of the vaccine:

Direct regulation is inefficient because:

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. If the government establishes an effluent fee of $7.00 per ton, how much tax would firms pay to the government?

Government attempts to offset market failures can prevent the market from dealing with a problem more effectively.

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 the expectation is that it would be largely passed on to consumers. The rationale for this tax is that it will:

Opponents of government intervention in the economy argue that government's attempts to correct informational problems:

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. If the government establishes a regulation requiring each company to reduce pollution by 50 percent, what will be spent on reducing pollution?

All of the following are justifications for government intervention except: