Exam 48: Market Failures, Government Failures, and Rent Seeking

When the people creating an externality are made to pay for the externality by the government, the externality is said to be internalized.

When the benefits of an activity are received by those who are not directly involved in it:

The figure below shows the demand and supply curves in the market for elementary education. Figure 13.1 In the figure, D: Private demand curve for elementary education D + s: Demand curve which includes public benefits S: Supply curve of education Price and Quantity have been taken on vertical and horizontal axes respectively. According to Figure 13.1, the outcome of an unregulated, unsubsidized market would be:

Social cost is negative in case of a negative externality.

Why are cows and chickens less prone to become extinct?

One cause of market failure may be the absence of clearly defined property rights.

Problems of moral hazard and adverse selection occur most frequently when excessive information exists in markets.

The figure given below shows the demand for permits and the maximum permissible level of pollution. Figure 13.4 In the figure, The downward sloping line is the demand curve of permits; The vertical line denotes the maximum permissible limit of pollution. Refer to Figure 13.4.Suppose the government wishes to reduce pollution to a quantity of Q_b.If it sells marketable pollution permits at a quantity of Q_b then:

The existence of externalities in a market implies that:

Economists like Joseph Stiglitz regard market as:

The Austrian school of economists stressed on the efficiency of the markets on the pretext that:

The following table shows the costs and benefit of producing a commodity. Table 13.1 In Table 13.1, what level of tax per unit would be appropriate to internalize the externality?

The free rider problem arises when a good is:

When consumers have perfect information about the quality of the products they purchase, the problem of adverse selection is likely to arise.

When a good is subsidized by the government, the amount of the good produced or consumed declines.

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?

Both the principles of rivalry and mutual excludability apply for club goods.

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:

One reason that some whales were hunted close to extinction is that no one can claim ownership of a whale until it is killed.If property rights to the whale population were established:

A market in which adverse selection occurs is often called a lemons market.