Exam 21: Market Failures, Government Failures, and Rent Seeking

Suppose that the current price of a marketable permit to emit one ton of gunk is $60.For firm A, the marginal cost of reducing one ton of gunk is $50.For firm B, the marginal cost of reducing one ton of gunk is $70.Under a marketable permit system:

In the case of public goods:

In order to reduce the possibility of adverse selection banks should raise their interest rates charged on the loans.

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

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:

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:

Which of the following is an example of a positive 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.If each fisherman decides whether or not to fish based on the average catch, what is the profit that each fisherman earns?

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. In Figure 13.4, if the government sells Q_b permits to pollute at a price of P_b each, then:

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 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. Figure 13.1 represents a situation of:

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

In China prior to 1990, most residential buildings were in dilapidation because:

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

A market in which adverse selection may not occur is:

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

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.

When a particular resource is commonly used, it tends to get underutilized.

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?

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?