Exam 11: Government Intervention in the Market

One effect of adverse selection in a market is that the equilibrium quantity of the product may be smaller than it would have been if there were no information problems.

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain,then,according to the Coase theorem

A disadvantage of trademarking a firm's product is

Which of the following displays these two characteristics: rivalry and non-excludability?

Figure 11.10 Consider a chemical plant that discharges toxic waste into a nearby waterway. To reduce the emissions of toxic waste, the firm can install pollution abatement devices. Figure 11.10 shows the marginal benefit and the marginal cost from reduction the toxic waste emissions. -Refer to Figure 11.10.Suppose the emissions reduction target is currently established at 8 million tons.Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

Which of the following parties is likely to have the most information about the health of an individual who is trying to purchase a health insurance policy?

What is the term that is used to refer to a situation in which one party to an economic transaction has less information than the other party?

Ronald Coase is famous for the Coase theorem,which is based on the premise that there is an economically efficient level of pollution reduction.Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulphur dioxide in an economically efficient manner.Why isn't this program an example of the Coase theorem? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Health insurance companies impose deductibles on policies and co-payments on claims to reduce the problem of adverse selection.

For which of the following firms is patent protection of vital importance?

Figure 11.13 Coal burning utilities release sulphur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain, they overproduce the quantity of electricity. This is illustrated in Figure 11.13. -Refer to Figure 11.13.S₁ represents the supply curve that reflects the private cost of production,and S₂ represents the supply curve that reflects the social cost of production.One way to internalise the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalise the cost of the externality?

A moral hazard

How does a negative externality in production reduce economic efficiency? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

What is rent seeking and how is it related to regulatory capture? ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.What is the deadweight loss resulting from producing at the market equilibrium?

The 10-year protection period from generic competition for drug manufacturers is a form of -.

Will equilibrium in a market always result in an outcome that is economically efficient? Explain. ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Figure 11.6 Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 11.6 shows the paper market. Use this Figure to answer the following question(s). -Refer to Figure 11.6.Why is there a deadweight loss?

If a state requires all drivers to purchase auto insurance,insurance companies still face the problem of

Figure 11.16 Figure 11.16 shows the market for Atlantic tuna, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 11.16.Identify the area that shows the deadweight loss from overfishing.