Exam 4: Market Failures Caused by Externalities Asymmetric Information

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero?

What are the two conditions that must exist for markets to produce efficient outcomes?

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt, then his consumer surplus is

A significant amount of positive consumer surplus is the reason why sometimes a shopper regrets having bought a particular item.

Buyers will opt out of markets in which

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve From S to S2 in diagram (b) might be caused by a per-unit

Market failures

The value that consumers get (from consuming a product) over and above what they actually paid for the product is called

TripAdvisor provides online reviews of hotels, restaurants, and attractions at tourist destinations around the world. When a traveler is planning a vacation, TripAdvisor helps the traveler avoid

If car makers are required to install gadgets to improve the cleanliness of car-exhaust, we would expect the equilibrium quantity in the car market to decrease.

Refer to the diagram. From society's perspective, if MB1 and MC2 are relevant,

In a situation where an externality occurs, the "third party" refers to those who

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure Suggests that there is (are)

eBay and Amazon provide "sellers' ratings" information based on the experiences of past buyers. This is to help resolve the adverse selection problem faced by potential buyers.

Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the

Describe what is meant by the adverse selection problem.

What is a Pigouvian tax? The U.S. government has placed a Pigouvian tax on CFCs; explain how this tax works.