If, after careful analysis, an economist concludes that there has been a market failure, which of the following possible corrective actions might the economist favor? Why?
a. prohibiting the activity
b. charging fees for continuing the activity
c. requiring that the public be informed of the activity
d. government purchase of the item for the public
What will be an ideal response?
Any corrective measure should, as much as possible, be marketlike in nature.a. This is not generally appropriate because it does not rely on a price mechanism to bring about change.b. If the activity generates detrimental externalities, a fee would be appropriate in order to bring marginal private cost toward marginal social cost.c. If the activity involves asymmetric information, the requirement to inform may improve a person’s abilities to make an informed choice.d. If the item is a public good, government purchase may be appropriate. However, in other cases, government purchase is not generally a useful corrective to market failure.
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Which of the following groups does not fit in with the others?
A. Illegal immigrants B. Undocumented workers C. Green-card holders D. Overstaying aliens
Total surplus:
A. can never be negative.
B. is always zero in an efficient market.
C. can be negative when the market is not in equilibrium.
D. is greater than the sum of consumer and producer surplus.
Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, they win $20 and if it is blue, they win $1. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; if it is red, they win $20; if it is blue, they win $5; and if it is green, they win $1. Both games cost $5 to play. Kate is considering whether to play the second game. If Kate only cares about the expected value of the outcome and does not care about risk, she should:
A. not play since she never wins anything. B. play if the cost of playing the game is greater than the expected value of the payoff. C. compare the cost of playing the game with the value of her time. D. play if the cost of playing the game is less than the expected value of the payoff.
The discount rate is the interest rate
a. commercial banks charge their low-risk customers for a loan. b. savings and loan associations pay for using savings deposit funds. c. the U.S. Treasury pays individuals who buy Treasury bonds in denominations of $10,000 or more. d. the Federal Reserve charges banking institutions for borrowing its funds.