1) Which type of market failure does the following represent. a) Construction of
ID: 1113250 • Letter: 1
Question
1) Which type of market failure does the following represent.
a) Construction of a bowling alley in the center of a busy town. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
b) Charlie loves watching sponge bob on his local station but he never sends any money to support the station during it’s fund raising drives. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
c)Buying a used appliance on Ebay. Choose one answer from list below
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
d)A mango tree in an open lot. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
2a) Why does the market fail in the presence of a public good.
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
3a) Why does the market fail in the presence of a positive externality
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
4a) Why does the market fail in the presence of asymmetric information.
b) How could the ignorant party acquire information.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
5a) Define the tragedy of the commons.
b) Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer’s pasture does not suffer from the tragedy of the commons.
1) Which type of market failure does the following represent.
a) Construction of a bowling alley in the center of a busy town. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
b) Charlie loves watching sponge bob on his local station but he never sends any money to support the station during it’s fund raising drives. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
c)Buying a used appliance on Ebay. Choose one answer from list below
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
d)A mango tree in an open lot. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
2a) Why does the market fail in the presence of a public good.
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
3a) Why does the market fail in the presence of a positive externality
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
4a) Why does the market fail in the presence of asymmetric information.
b) How could the ignorant party acquire information.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
5a) Define the tragedy of the commons.
b) Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer’s pasture does not suffer from the tragedy of the commons.
1) Which type of market failure does the following represent.
a) Construction of a bowling alley in the center of a busy town. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
b) Charlie loves watching sponge bob on his local station but he never sends any money to support the station during it’s fund raising drives. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
c)Buying a used appliance on Ebay. Choose one answer from list below
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
d)A mango tree in an open lot. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
2a) Why does the market fail in the presence of a public good.
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
3a) Why does the market fail in the presence of a positive externality
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
4a) Why does the market fail in the presence of asymmetric information.
b) How could the ignorant party acquire information.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
5a) Define the tragedy of the commons.
b) Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer’s pasture does not suffer from the tragedy of the commons.
1) Which type of market failure does the following represent.
a) Construction of a bowling alley in the center of a busy town. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
b) Charlie loves watching sponge bob on his local station but he never sends any money to support the station during it’s fund raising drives. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
c)Buying a used appliance on Ebay. Choose one answer from list below
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
d)A mango tree in an open lot. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
2a) Why does the market fail in the presence of a public good.
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
3a) Why does the market fail in the presence of a positive externality
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
4a) Why does the market fail in the presence of asymmetric information.
b) How could the ignorant party acquire information.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
5a) Define the tragedy of the commons.
b) Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer’s pasture does not suffer from the tragedy of the commons.
1) Which type of market failure does the following represent.
a) Construction of a bowling alley in the center of a busy town. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
b) Charlie loves watching sponge bob on his local station but he never sends any money to support the station during it’s fund raising drives. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
c)Buying a used appliance on Ebay. Choose one answer from list below
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
d)A mango tree in an open lot. Choose one answer from list below.
o Asymmetric information
o Public good
o Tragedy of commons
o Moral hazard
o Positive externality
o Adverse selection
o Negative externality
2a) Why does the market fail in the presence of a public good.
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
3a) Why does the market fail in the presence of a positive externality
b) Identify a solution to the market failure.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
4a) Why does the market fail in the presence of asymmetric information.
b) How could the ignorant party acquire information.
Choose 1 answer from the list below for a and b.
o Overproduced
o Under produced
o No private provision
o No market transaction takes place
o Ignore external cost/benefit
o Taxation
o Subsidy
o Screening
o Signalling
5a) Define the tragedy of the commons.
b) Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer’s pasture does not suffer from the tragedy of the commons.
Explanation / Answer
1. a) Negative externality
When action of one economic agent adversely affects other people then there is negative externality.
b) Public good
The given situation represents free rider problem in which people does not pay anything but take benefit from the good.
c) Adverse selection
In Adverse selection, seller has more information than buyers about the product.
d) Tragedy of commons
This is because benefits of mango tree is taken by many people who want to take greatest advantage that depletes the tree.
2. a) Public good is a good which are non-rival and non-exclusive in nature. Non-rival means consumption of the public good by one person does not reduce its amount available for the other person. For example National defense, public park, street light etc. Non-exclusion means if public good has been provided then it does not possible to exclude one person from consuming it. In fact it will be Pareto inefficient to exclude one person because if that person is allowed to consume then he may be better off but other are not worse off. As a result of non-rival and non-exclusion, property there is problem of free rider and due to free rider market fails.
b) Merger, Tax, Assignment of property rights are the solutions of market failure.
No private provision.
Taxation
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