Exam 15: The Shortcomings of Free Markets

The interest rate is the opportunity cost of transferring spending power between time periods.However, the market mechanism may fail to provide adequately for future economic growth.List the reasons why a market might fail.

Land on both sides of the border of Brazil and Venezuela has long been occupied by the Yanomamo people.These "fierce people" are the last Stone Age tribe left in South America.Following discovery of gold, approximately 45,000 garimperios (gold miners) invaded the Yanomamo territory.The mining process pollutes the rivers and scares away game, so traditional Yanomamo sources of food, are almost impossible to find now.The Yanomamo are starving.Economists call this problem

Critics argue that society is depleting its energy resources far too quickly.The most likely explanation for this behavior is that

Suppose that the government decided to increase interest rates in order to encourage saving.Would this likely lead to an increase in investment and higher future economic growth rates? Explain.

Monopolists usually earn economic rent.

What do you mean by Coase theorem?

Electric utilities have trumpeted nuclear power for years, advocating it as lower in production costs than other alternatives.Yet, society has resisted heavy reliance on nuclear power.Explain the source of the disagreement and suggest which side (utilities or society) is correct.

If long-term investments are increasing,

Rent-seeking behavior refers to

As manufacturing becomes more efficient, services can be expected to become more costly.

Which of the following could be written into an insurance contract in order to reduce the problem of moral hazard?

SouthState Chemical Co.produces pine oil cleaners in a process that produces emissions that discolor the paint on nearby houses, although the emissions have been declared nontoxic to humans. a.Is the price for the cleaner likely to be allocatively efficient? Use a graphic illustration in your answer. b.If your answer to (a) is no, what is an appropriate government policy to correct the problem?