Exam 13: Market Failures, Government Failures, and Rent Seeking

Education is a good example of a positive externality because the benefits of an education accrue not only to the individual but also to society as a whole.

A market failure occurs when:

The following table shows the costs and benefit of producing a commodity. Table 13.1 -According to Table 13.1,the external cost of producing 5 units of the output is:

Suppose the wheat industry is in long-run equilibrium,so that farmers are earning a normal rate of return.Suppose the farmers are able to convince the Congress to provide a minimum price for wheat that is above the equilibrium price.The result would be:

When resources are commonly owned,there are incentives in place to ensure that the resources are used efficiently.

The existence of externalities in a market implies that:

James insured his car with a renowned insurance company that checked his driving skills and verified his accident records before insuring his car.After paying two premiums for this insurance,James took to drinking and driving.This action of James is likely to create:

The Coase theorem states that when transactions costs are low,then:

If a gas station selling gasoline is asked to incorporate the pollution costs,its supply curve will shift to the right.

When social costs of producing or consuming a good exceed private costs:

Suppose the current price of a marketable permit to emit one ton of sulfur dioxide is $100.If the marginal cost for a firm to reduce one ton of sulfur dioxide is $80,then:

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing.The fisherman were charged $50 on each boat they sent out for fishing.The following table shows the total pounds of fish caught per hour and the number of boats used for fishing. Table 13.2 - Refer to Table 13.2.Suppose fish sells for $1 per pound.What is the socially optimal number of boats that will maximize the profit earned by the fishermen?

_____ occurs when unobservable qualities are valued incorrectly because of a lack of information.

When increase in capital is accompanied by new knowledge and by increasing number of laborers,the producer experiences increasing returns.

Asymmetric information arises when:

If the value of a network to a single user is $1 for each other user on the network,then a network of size 100 has a value of:

Laws that require children to be inoculated against certain diseases before they enter kindergarten are examples of the command approach.

A person who takes less care of his health after obtaining a health insurance is creating a negative externality.

Overfishing along the coastline of Helsking village led the government to impose a fee on the boats used for fishing.The fisherman were charged $50 on each boat they sent out for fishing.The following table shows the total pounds of fish caught per hour and the number of boats used for fishing. Table 13.2 - Refer to Table 13.2.Suppose fish sells for $1 per pound.What is the amount of total profit earned when the fishermen use the socially optimal number of boats?

The following table shows the costs and benefit of producing a commodity. Table 13.1 -According to Table 13.1,at the social equilibrium: