Exam 8: Market Failure Versus Government Failure

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 a regulation requiring each company to reduce pollution by 50 percent, what will be spent on reducing pollution?

What do economists mean when they say there is "market failure"?

Based on economic theory, most economists believe market incentive plans are:

Refer to the graph shown, which shows the demand and supply for a new vaccine against the common cold. Once vaccinated, a person cannot catch a cold or give a cold to someone else. If government does not subsidize the production of this vaccine:

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:

A good that if supplied to one person is supplied to all and whose consumption by one individual does not prevent its consumption by another individual is known as:

If government undertakes to reduce water usage by using a market incentive plan:

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:

Why can imperfect information lead to market failure? Explain the adverse selection problem and give an example.How could markets for information resolve this problem?

A system in which power plants buy and sell the right to pollute in the form of emission credits is known as:

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

James enjoys gardening in the nude because he says it puts him in touch with nature. His neighbors find his gardening routine very offensive, but James replies that they should mind their own business and not watch him. To an economist this situation illustrates the concept of:

Economists believe that if government provides information about product quality:

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. This proposal is an example of a:

If the benefit of a public good is small to each individual in a society of millions of individuals:

A European Union official, Mr. McGreevey, claims a portion of EU law involves overregulation. McGreevey is suggesting the EU suffers in part from:

The following table shows the quantity demanded of a public good at different price levels by John and Elizabeth. Quantity Demanded Price John Elizabeth 0 100 100 0.5 90 80 1 80 60 1.5 70 40 2 60 20 2.5 50 0 3 40 0 3.5 30 0 4 20 0 4.5 10 0 5 0 0 Answer the following questions: (1)Draw the demand curve for both John and Elizabeth. (2)Draw the market demand for this public good. (3)If the marginal cost of providing one unit of the good is $3 per unit,what is the socially optimal amount of the public good (show this on the same graph)? (4)In this case,how much will each individual be willing to pay?

Since trash generation involves an externality, the way economists might address the problem of trash generation that is most likely to be optimal is by:

An example of a negative externality is the:

Economists are likely to oppose direct regulation because they do not believe there is any need for government to take action when negative externalities exist.