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How do market failures cause inefficient allocations of resources? Be sure to understand common market failure problems that apply to the environment like externalities, public goods, imperfect competition, and asymmetric information issues. Understand why government failures can occur along similar lines in some cases

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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NOTE: I am just trying to wrap my head around these concepts so what I would like to know is of these 6 available options, which three, would be the simplest in terms of theory to explain? _______________________________________________________________________ Thevast majority of economists are classically trained, which means we tend to see the free and unencumbered functioning of the marketplace as yielding the best economic outcomes. Where policy is needed is when the market fails to produce socially acceptable results. A prime example of market failure has to do with pollution: unless polluters are forced to incorporate into their financial calculations the costs of the pollution they cause, they will overproduce and continue to destroy the environment. The following list describes situations where the government may want to step in: ____________________________________________________________________________________________________________________________ 1. Monopoly power: Markets may fail to control the abuses of monopoly power.---------- 2. Missing markets: Markets may fail to form, resulting in a failure to meet a need or want, such as the need for public goods, such as defense, street lighting, and highways. ------3. Incomplete markets: Markets may fail to produce enough merit goods, such as education and healthcare.------- 4. De-merit goods: Markets may also fail to control the manufacture and sale of goods like cigarettes and alcohol, which have less merit than consumers perceive. --------5. Property rights: Markets work most effectively when consumers and producers are granted the right to own property, but in many cases property rights cannot easily be allocated to certain resources. Failure to assign property rights may limit the ability of markets to form.-------- 6. Information failure: Markets may not provide enough information because, during a market transaction, it may not be in the interests of one party to provide full information to the other party. ______________________________________________________________________________________________________________________________________Pick three from this list and explain what types of policies might be proposed to offset the market’s failure. Explain why your proposals might work but also if the policies themselves might have negative side effects.

1. A reason why there is more competition in the restaurant industry than in the music streaming industry is that restaurants

A.unlike music streaming? companies, have to abide by government sanitation rules.

B.have to cater to a variety of consumer tastes while music streaming companies do not.

C.have more elastic demand for their product compared to music streaming companies.

D.unlike music streaming? companies, do not have significant economies of scale.

2. Why would a government use a patent to block entry to some markets if this hinders competition especially when governments generally promote? competition?

A.Patents are justified because they are an important means for creating network externalities.

B.Patents encourage firms to spend money on research necessary to create new products.

C.Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.

D.Patents are an important source of government revenue.

3.Suppose we can divide all the goods produced by an economy into two? types: consumption goods and capital goods. Capital? goods, such as? machinery, equipment, and? computers, are goods used to produce other goods.

Suppose a technological advance occurs that affects the production of consumption goods but not capital goods.

If a technological advance occurs that affects the production of consumption goods but not capital?goods, then the production possibilities frontier will

A.remain unchanged.

B.shift outward along the consumption goods axis.

C. shift outward along the capital goods axis.

D. shift outward along both axes.

The new production possibilities frontier will indicate that with the technological? advance, more (CAPITAL GOODS /// CONSUMPTION GOODS /// OF BOTH GOODS) can be produced.

4. Market failure is best described as

A.All of the above.

B.when consumption occurs at low social benefit.

C.when the market fails to produce the efficient level of output.

D.when the market fails to produce deadweight loss.

E.when production occurs at high social cost.

The market will fail when which of the following? happen????(Check all that? apply.)

A.When property rights are incomplete.

B.When there is a market surplus.

C.When there is scarcity.

D.When it is difficult to enforce property rights.

E.When there is a market shortage

5.In which of the following market structures is price discrimination? possible?

??????a. perfect competition

??????b. monopoly

??????c. oligopoly

??????d. monopolistic competition

A.?b, c, and d only

B.?a, b,? c, and d

C.c and d only

D.b and c only

6. How do market economies ultimately determine what goods and services are? produced, how the goods and services will be? produced, and who will receive the goods and? services?

A.The government determines what goods and services are? produced, how to produce? them, and who will receive them.

B.Firms determine what goods and services are produced and how to produce? them, and markets determine who will receive them.

C.Consumers determine what goods and services are? produced, firms determine how to produce? them, and equity determines who will receive them.

D.Consumers determine what goods and services are? produced, firms determine how to produce? them, and markets determine who will receive them.

E.Firms determine what goods and services are? produced,technology determines how to produce? them, and consumers determine who will receive them.

7. For monopolistically competitive firms is it always likely in the? long-run to have? zero-economic profit?

Monopolistically competitive firms in the? long-run

A.may continue to earn profit by convincing consumers their products are differentconvincing consumers their products are different.

B.will not continue to earn profit because the cost of production will rise as new firms enter the market.

C.will not continue to earn profit because monopolistically competitive firms produce identical products.

D.will continue to earn profit due to barriers to new firms entering the market.

E.may continue to earn profit by instead beginning to produce a product identical to competitors.

8. In monopolistically competitive? markets, what is a factor under a? firm's control that determines whether it will be? successful?

A. Upper A firm's ability to differentiate its productA firm's ability to differentiate its product.

B.Consumer preferences.

C.Factors that affect all firms in a market.

D.Chance events.

E.Both a and b.

9. From the list? below, select the necessary condition in order to achieve successsful price discrimination.

A. The seller must possess market power.

B. Buyers must have identical inelastic demands.

C. Transactions costs must be zero.

D.The buyer must possess market power.??

10.Suppose Dell is currently selling 3,000,000 computers per year. However, managers at Dell are considering whether to increase production by 300,000 computers. One manager explains that after increasing production by this? amount, total profit would be? $100 million. Given this? information, should Dell increase production by 300,000 computers??

A.?Yes, because Dell would earn a profit.

B.Information about the additional cost incurred from producing 300,000additional computers is required to answer this question.

C.?No, because increasing production by 300,000 computers would decrease the price of computers.

D.Information about the additional revenue earned and the additional cost incurred from producing 300,000 additional computers is required to answer this question.

E. Information about the total revenue earned and the total cost incurred from producing 3,300,000 computers is required to answer this question.

11. The Majestic box office sells tickets for the same play at different? prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the? front, around the stage. Which of the following statements is? true?

A. This is an example of product differentiation not price discrimination.

B. The theatre practices first degree price discrimination by setting prices based on willingness to pay.

C. Charging two different prices is an effective way to avoid an excess demand for play? tickets; the higher price lowers quantity demanded to some extent.

D. Since the cost of producing the play does not change with the seating? configuration, this is evidence of price discrimination based on market segmentation.

1. True or false? Actions that allow oligopoly firms to coordinate their pricing behavior are called facilitating practices.
 
2. In the long run, if a perfectly competitive firm is incurring an economic loss, the firm
 
A. Will leave the industry
B. Is earning greater than normal profit but not an economic profit
C. Will minimize opportunity costs by staying in business
D. Will produce as long as total revenue exceeds the total fixed cost
E. Will have some long-run fixed costs
 
3. Which of the following is NOT one of the problems associated with common ownership of resources and a job that needed to be done?
 
A. Zimbody paid big body to do the antibody's job
B. Anybody could have done it, but nobody did it
C. Everybody was sure somebody would do it
D. Everybody blamed somebody
E. Nobody realized that everybody wouldn't do it
 
4. A negative externality related to a product
 
A. Results in an overallocation of resources to that product
B. Can be corrected by government subsidies
C. Is an example of government failure
D. Results in under allocation of resources to that product
E. Can be corrected by lowering the cost of production
 
5. A primary cause of inefficiency in government is that
 
A. Antitrust is applied to government policies as well as market situations
B. Government employees tend to be lazier than private-sector employees
C. The gains from government projects are often concentrated, while the costs are dispersed among all taxpayers
D. Markets interfere with governments
E. All of these are true
 
6. According to the survey reported in the text, most people believe that health-related goods and services should be allocated by the ___ allocation mechanism.
 
A. First come, first served
B. Random
C. Government
D. Price
E. Private
 
7. It is ___ that transfer(s) consumer surplus to producers and creates (s) deadweight losses.
 
A. The commodity market
B. Restrictions to entry
C. The allocation mechanism
D. Government
E. Perfect competition
 
8. The practice of legislators supporting one another's projects in order to ensure support for their own is called
 
A. Social regulation
B. Partisanship
C. Democracy
D. Logrolling
E. Wasteful
 
9. When shopping in some countries, bargaining is standard. The sellers ask for a high price to start and then decrease the price until the sale is made. This is due to
 
A. Producers trying to gain as much consumer surplus as they can
B. Prices changing so quickly that it doesn't make sense to make price tags
C. No government control
D. The market unable to reach equilibrium
E. Consumers trying to gain as much consumer surplus as they can
 
10. All of the following are examples of a first-come, first-served system of allocation EXCEPT
 
A. Classes at school
B. Tickets to concerts
C. Medical care
D. Access to highways
E. All of these are examples allocated by a first-come, first-served system

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