Exam 11: Government Intervention in the Market

Adverse selection

Which of the following is not an advantage to an insurance company insuring a large group of people for health insurance?

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.At a price of $3,

State and local governments subsidise university students with grants and low-interest loans.The loans and subsidies are examples of

Which of the following would result in a positive externality?

Suppose that in a market for used cars,there are good used cars and bad used cars (lemons).Consumers are willing to pay as much as $6000 for a good used car but only $1000 for a lemon.Sellers of good used cars value their cars at $5000 each and sellers of lemons value their cars at $800 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?

The market demand for a public good can be determined by

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem.

Figure 11.2 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11.2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. -Refer to Figure 11.2.How much is Amit willing to pay to have four street lights installed?

Which of the following must be present to reach a private solution to an externality problem?

Economic efficiency is a market outcome in which the marginal benefit of consumers is equal to the marginal cost of production,and the sum of consumer surplus and producer surplus is maximised.

Figure 11.12 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 11.12. -Refer to Figure 11.12.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidise these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalise the external benefits?

Figure 11.1 -Refer to Figure 11.1.The figure above represents the market for pecans.Assume that this is a competitive market.If the price of pecans is $9,what changes in the market would result in an economically efficient output?

'When it comes to public goods,individuals do not reveal their true preferences because it is not in their self-interest to do so.' Evaluate this statement. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the social benefit of consuming a good or a service exceeds the private benefit,

If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm,your legal fees would be considered

An example,from the list below,of a common resource is

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Governments can increase the consumption of a product that creates positive externalities by