Exam 11: Government Intervention in the Market

Figure 11.4 Figure 11.4 shows a market with a negative externality. -Refer to Figure 11.4.The deadweight loss due to the externality is represented by the area -.

What do economists call the price of a factor of production that is in fixed supply?

What is the principle-agent problem? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

An external benefit is created when you pursue a university education.

If a state requires all drivers to buy insurance,the problem of adverse selection is eliminated.

When there is a negative externality,the private cost of production ________ the social cost of production.

In markets with asymmetric information

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Figure 11.8 Figure 11.8 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 11.8.Why is there a deadweight loss?

Figure 11.15 Figure 11.15 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. -Refer to Figure 11.15 to answer the following questions. a.In the absence of any government intervention,what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security. b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw. c.On your diagram identify the economically efficient level of aviation security.Denote this level Q_e. d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy. -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Which of the following is true of trademarks?

Explain how the decision by parents to not immunise their children,hoping that their children will not get sick because other parents have had their children immunised,is an example of free riding.How is this behaviour dangerous to the public? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.

The efficient output level of a public good occurs where the

Parents who do not have their children immunised and attempt to benefit from other parents who did have their own children immunised are exhibiting an economic behaviour known as

Figure 11.3 Figure 11.3 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 11.3.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case,the diagram shows

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

The cost borne by a producer in the production of a good or service is called

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.The current market equilibrium output is partly the result of overfishing.In that case,what does S₁ represent?

If there is pollution in producing a product,then the market equilibrium price is too high and equilibrium quantity is too low.