Question 1 A Which type of market failure does the following represent? Construc

Question

Question 1 A
Which type of market failure does the following represent?

Construction of a bowling alley in the center of a busy town.

Charlie loves watching Sponge Bob on his local TV station but he never sends any money to support the station during its fund raising drives.

Buying a used appliance on Ebay

A mango tree in an open lot

Question 1B - Part 1

(i) Why does the market fail in the presence of a public good?

(ii) Identify a solution to the market failure.

TO ANSWER (i) and (ii)

CHOOSE ONLY TWO ANSWERS FROM THE LIST BELOW.

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

Question 1B - Part 2

(i) Why does the market fail in the presence of a positive externality?

(ii) Identify a solution to the market failure.

TO ANSWER (i) and (ii)

CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

Question 1B - Part 3

(i) Why does the market fail in the presence of asymmetric information?

(ii) How could the ignorant party acquire information?

TO ANSWER (i) and (ii)

CHOOSE ONLY TWO ANSWERS FROM THE LIST BELOW

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

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?

Construction of a bowling alley in the center of a busy town.

Answer 1Choose...moral hazardpublic goodpositive externalitynegative externalityadverse selectionasymmetric informationtragedy of the commons

Charlie loves watching Sponge Bob on his local TV station but he never sends any money to support the station during its fund raising drives.

Answer 2Choose...moral hazardpublic goodpositive externalitynegative externalityadverse selectionasymmetric informationtragedy of the commons

Buying a used appliance on Ebay

Answer 3Choose...moral hazardpublic goodpositive externalitynegative externalityadverse selectionasymmetric informationtragedy of the commons

A mango tree in an open lot

Question 1B - Part 1

(i) Why does the market fail in the presence of a public good?

(ii) Identify a solution to the market failure.

TO ANSWER (i) and (ii)

CHOOSE ONLY TWO ANSWERS FROM THE LIST BELOW.

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

Question 1B - Part 2

(i) Why does the market fail in the presence of a positive externality?

(ii) Identify a solution to the market failure.

TO ANSWER (i) and (ii)

CHOOSE ONLY THREE ANSWERS FROM THE LIST BELOW

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

Question 1B - Part 3

(i) Why does the market fail in the presence of asymmetric information?

(ii) How could the ignorant party acquire information?

TO ANSWER (i) and (ii)

CHOOSE ONLY TWO ANSWERS FROM THE LIST BELOW

Select one or more:

(i) overproduced

(i) underproduced

(i) no private provision

(i) no market transaction takes place

(i) ignore external cost/benefit

(ii) government provision

(ii) taxation

(ii) subsidy

(ii) screening

(ii) signalling

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

First question is answered below

1. Construction: Negative externality (as it will affect traffic)

2. Charlie: Tragedy of the commons (since the cable is being over consumed without paying for it)

3. Buying a used appliance: Asymmetric information (since the seller will have more information on the good's quality than the buyer)

4. Mango tree: Public good (non rival and non excludable good)

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