Question 1

What is a public good? Give two examples of a public good.

Accepted Answer

A public good is a good that is nonexclusive (no one can be excluded from its benefits) and nonrival (consumption by one does not preclude consumption by others). There are many possible examples of public goods, two of which are national defense and police protection.

Question 2

A government failure occurs when the government intervention in the market that was intended to correct a market failure actually makes the situation worse. Such a failure could occur for one or more of the following reasons:

Accepted Answer

(1) Government doesn't have an incentive to correct the problem. Political pressure to benefit some group or another will often dominate over pursuing the general welfare.
(2) Governments don't have enough information to deal with the problem. To intervene effectively, the government must have good information; but just as buyers and sellers often lack adequate information, so does government.
(3) Intervention in markets is almost always more complicated than it initially seems. Almost all actions have unintended consequences. Government intervention can prevent the market from dealing with the problem more effectively. As government deals with short run problems it eliminates the incentive that would have brought about long run market solutions.
(4) The bureaucratic nature of government intervention does not allow fine-tuning. When problems change, the government's solution often responds more slowly than the market.
(5) Government intervention leads to more government intervention. Opening the door to government intervention in one area where it may be helpful often enables the government to enter into other areas where intervention may be harmful.

Question 3

What problems are associated with determining how much of a public good should be provided?

Accepted Answer

The problems associated with the provision of public goods include the following. First, it may be difficult to decide what is a public good since what is and is not a public good depends upon technology. For example roads used to be privately provided when the main mode of transportation was the horse and buggy and toll collection was easy. But with the advent of the automobile, toll collection became difficult and roads became more like public goods. A second problem is that it is difficult to determine how much consumers are willing to pay for public goods. This is the case because once a public good is provided to one consumer all consumers may use it (so there is little incentive to reveal how much it is worth to you). Surveys may not provide accurate information because respondents have an incentive to overstate or understate their True willingness to pay for public goods.

Question 4

Explain why incentive programs are more efficient than direct regulation as a means of eliminating the problems of externalities.

Accepted Answer

The answer of Explain why incentive programs are more efficient...

Question 5

What are three major sources of market failure?

Accepted Answer

The answer of What are three major sources of market...

Question 6

Should all professionals be licensed? Or only some? Discuss the argument for licensing and for the information alternative for one of these professions: 1. medical doctors, 2. college professors, 3. lawyers, 4. auto mechanics, 5. beauticians. Then choose one other profession, and briefly indicate how (if at all) the weight of the arguments would change.

Accepted Answer

The answer of Should all professionals be licensed? Or only...

Question 7

Why do information problems constitute market failures?

Accepted Answer

The answer of Why do information problems constitute market failures?...

Question 8

What is a market failure? Why do market failures occur?

Accepted Answer

The answer of What is a market failure? Why do...

Question 9

What are the arguments for and against government intervention to deal with information problems?

Accepted Answer

The answer of What are the arguments for and against...

Question 10

Explain what a public good is and give an example. What problems are associated with determining what is a public good and how much of a public good should be provided?

Accepted Answer

The answer of Explain what a public good is and...

Question 11

One of the solutions to pollution that economists advocate more often than non-economists is a marketable certificate program. Explain how such a program would work, and why economists tend to favor such an approach.

Accepted Answer

The answer of One of the solutions to pollution that...

Question 12

The city of Spillsville is worried that its municipal landfill is going to fill up. As a result, the city's sanitation engineer has proposed two solutions:
Solution 1: Require each household to reduce its garbage disposal by 100 pounds per month.
Solution 2: Impose a tax of $.05 per pound of garbage that will overall result in the same decline in garbage disposal as Solution 1.
Which of the two solutions would an economist prefer to have implemented? Explain.

Accepted Answer

The answer of The city of Spillsville is worried that...

Question 13

What are the three alternative methods of dealing with externalities? Briefly explain each one.

Accepted Answer

The answer of What are the three alternative methods of...

Question 14

Describe how voluntary restrictions can be used to address externalities. What problem tends to arise with this method?

Accepted Answer

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Question 15

Three methods of dealing with externalities are direct regulation, incentive policies, and voluntary restrictions. Explain and evaluate each of these options.

Accepted Answer

The answer of Three methods of dealing with externalities are...

Question 16

Why can imperfect information lead to market failure? Explain the adverse selection problem and give an example. How could markets for information resolve this problem?

Accepted Answer

The answer of Why can imperfect information lead to market...

Question 17

What is Pareto optimality? What are the three criticisms of using perfect competition as a benchmark to evaluate the society's goals?

Accepted Answer

The answer of What is Pareto optimality? What are the...

Question 18

What is an optimal policy? If a policy is not optimal, what does it imply in terms of utilization of resources?

Accepted Answer

The answer of What is an optimal policy? If a...

Question 19

What is the difference between a negative and a positive externality? Give an example of each.

Accepted Answer

The answer of What is the difference between a negative...

Question 20

Explain what a public good is and give an example. What problems are associated with determining how much of a public good should be provided?

Accepted Answer