Questions for Review without Answers
Chapter 17. Markets and the Government I.
Microeconomic Policy to Correct Market Failure
I. Basics
1) Explain why market failure is synonymous with inefficiency.
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II. Non-Private Goods
2) Do you think that knowledge is a public good?
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3) Distinguish common-property resources and open-access resources.
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III. The Infrastructure
4) Why is a country's infrastructure of such vital importance to the economy?
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5) Why would the private sector fail to provide all the necessary facilities?
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IV. Externalities
6) Define positive and negative externalities and the economic problem they cause.
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7) And explain the Coase theorem.
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V. The Environment
8) Try to list everything that makes up the environment.
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VI. Market Power
9) Why are firms with market power inefficient?
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VII. Asymmetric Information
10) Please define the following terms:
A. principal and agent
B. moral hazard
C. signalling
D. screening
E. adverse selection.
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11) Explain why asymmetric information is part of the human condition and give three examples.
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12) Give three examples of principal-agent relations.
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VIII. Microeconomic Policy to Correct Market Failure
13) Please define the following terms:
A. internalising externalities
B. socialising externalities
C. Pigovian tax
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