5) All of the following are examples of attempts to correct for a market failure

ID: 2439767 • Letter: 5

Question

All of the following are examples of attempts to correct for a market failure except:

(2pts)

government provision of free public schooling

putting tariffs and quotas on imports of foreign goods

carbon taxes or cap-and-trade plans designed to reduce global warming

putting health warnings on cigarette packages

using tax revenues to pay for something in order to get around the free rider problem

A private good has which of the following characteristics?

(2pts)

The are non-rival in consumption and have low exclusion costs.

They are non-rival in consumption and have high exclusion costs.

They are rival in consumption and have high exclusion costs.

They are rival in consumption and have low exclusion costs.

A bank offers low interest rates as a promotion. Many of the people who apply for loans are poor credit risks. This is an example of

(2pts)

adverse selection.

a positive externality.

moral hazard.

a public good.

a negative externality.

The "Coase Theorem" is most relevant to which of the following problems?

(2pts)

Eliminating externalities when transactions costs are low.

Finding ways to reduce adverse seelction.

Finding ways to reduce moral hazard.

Determining the optimum amount of a public good.

Making information more symmetric.

5. The correct answer is: b)

Reason: putting tariffs and quotas on foreign imports is actually a type of market failure and not any correction.

7. The correct answer is: d)

Reason: consider the example of a private car owned by an individual. It is rival in consumption and is easily excludable.

8. The correct answer is: a)

Reason: due to lower interest rate, more and more people with poor credit risks will opt for loans and this may lead to adverse selection.

9. The correct answer is: a).

Reason: the Coase theorem is actually successful when the transaction costs are negligible.

Thanks!

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