8. Property rights and market failures Loggers are much In the presence of marke
ID: 1147390 • Letter: 8
Question
8. Property rights and market failures Loggers are much In the presence of market failures, public policy can improve economic efficiency ikely to supply wood to the market if property rights are not enforced. Clossify the source of market failure in each case listed Market Power Market Failure Externality A single putbilic unbilities company is responsible for supplying electricity for an entire state. As a result, the utilities company can set the price of electricity. A manufacturing plant dumps chemical waste into a nearby river , poisoning the water supply for a small town downstreamExplanation / Answer
(1) Loggers are much more likely to supply wood.
[If property rights are not enforced, there is no external (environmental) cost accrued to the loggers, which keeps their marginal cost lower and increases supply.
(2)
Single public utility company is responsible for supplying for entire state - Market Power [This is monopoly situation]
Manufacturing plant dumps chemical waste - Externality [This is a negative externality from pollution]
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