Exam 8: Market Failure Versus Government Failure

A person who has auto insurance is likely to drive a little less safely and to take less care in parking their car in a safe place off the street. This is an example of a problem called:

Opponents of government intervention argue that government makes decisions based on:

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:

Television broadcasts are often given as examples of a public good. However, it is possible to code a broadcast so that only people who pay for the decoder box can view it. The use of a coded signal does what to a television broadcast?

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 tan) 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 would the firms spend on reducing pollution?

If a negative externality exists in the production of paper and paper is sold in a perfectly competitive market, at the equilibrium output:

What is the difference between a negative and a positive externality? Give an example of each.

Music spreads easily and cheaply on computer networks. As a result, music has become more like:

Refer to the graph shown. There is a $.010 per-gallon marginal cost external to the trade associated with the use of gasoline. Assuming that gasoline is sold in perfectly competitive markets, the market equilibrium price will be:

The best example of a public good is:

Which of the following does not illustrate the free rider problem?

The city of Spillsville is worried that its municipal landfill is going to fill up.As a result,the city's sanitation engineer has proposed two solutions: Solution 1: Require each household to reduce its garbage disposal by 100 pounds per month. Solution 2: Impose a tax of $.05 per pound of garbage that will overall result in the same decline in garbage disposal as Solution 1. Which of the two solutions would an economist prefer to have implemented? Explain.

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

Moral hazard problems can occur when insured individuals change their behavior to the detriment of the insurer.

An efficient policy to reduce pollution would reduce pollution to the point where:

Refer to the graph shown, which shows the demand and supply for a new vaccine against the common cold. Suppose once vaccinated, a person cannot catch a cold or give a cold to someone else. At the competitively determined output level, the marginal social benefit will be:

Alex is playing his music at full volume in his dorm room. The other people living on his floor find this to be nuisance, but Alex does not care. Alex's music playing is an example of a:

Which of the following is the best example of an adverse selection problem?

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

In the case of a public good, a demand curve that shows the marginal benefit of the good is: