5.1 Explain
the two causes of market failures. Given their definitions, could a
market be affected by both types of market failures simultaneously? LO1
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5.2 Draw
a supply and demand graph and identify the areas of consumer surplus
and producer surplus. Given the demand curve what impact will an
increase in supply have on the amount of consumer surplus shown in your
diagram? Explain why. LO2
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5.3 Use
the ideas of consumer surplus and producer surplus to explain why
economists say competitive markets are efficient. Why are below- or
above-equilibrium levels of output inefficient, according to these two
sets of ideas? LO2
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5.4 What
arc the two characteristics of public goods? Expla in the significance
of each for public provision as opposed to private provision. What is
the free-rider as it relates to public goods? Is U.S. border patrol a
public good or a private good? Why? How about satellite TV? Explain. LO3
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5.5 Draw,
production possibilities curve with public goods on the vertical axis
and private goods on the horizontal axis. Assuming the economy is
initially operating on thecurve, indicate how the production of public
goods might be increased. How might the output of public goods be
increased if the economy is initially operating at a point inside the
curve? LO3
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5.6 Use
the distinction between the characteristics of private and public goods
to determine whether the following should be produced through the
market system or provided by government: (a) French fries, (b) airport
screening, (c)court systems. (d) mail delive ry, and (c) medical care.
State why you answered as you did in each case. LO3
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5.7 What
divergences arise between equilibrium output and efficient output when
(a) negative externalities and (b) positive externalities are present?
How might government correct these divergences? Cite an example (other
than the text examples) of an external cost and an external benefit. LO4
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5.8 Why
are spillover costs and spillover benefits also called negative and
positive externalities? Show graphically how a tax can correct for a
negative externality and how a subsidy to producers can correct for a
positive externality.How does a subsidy to consumers differ from a
subsidy to producers in correcting for a positive externality? LO4
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5.9 An
apple grower’s orchard provides nectar to a neighbor’s bees, while the
beekeeper’s bees help the apple grower by pollinating his apple
blossoms. Use Figure 5.6b to explain. why this situation of dual
positive externalitics might to lead an under allocation of resources to
both apple growing and beekeepimg How might this underal location get
resolved via the means suggested by the Coase theorem? LO4
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5.10 The
LoJack car recovery stem allows the police to track stolen cars. As a
result, they not only recover 90 percent of Lojack-equipped cars thatnot
stolen but also arrest many auto thieves and shut down many “chop
shops” that take apart stolen vehicles to get at their used parts. Thus.
LoJack provides both private benefits and positive externalities,
Should the government consider subsidizing LoJack purchases? LO4
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5.11 Explain
the following statement, using the MB curve in Figure 5.9 to
illustrate: “The optimal amount of pollution abatement for some
substances, say, dirty water from storm drains, is very low; the optimal
amount of abatement for other substances, say, cyanide poison, is close
to 100 percent.” LO5 Reference Figure 5.9 ...
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5.12 Explain
why zoning laws, which allow certain land uses only in specific
locations, might be justified in dealing with a problem of negative
externalities. Explain why in areas where buildings sit close together
tax breaks to property owners for installing extra fire prevention
equipment might be justified in view of positive externalities. Explain
why excise taxes on beer might be justified in dealing with a problem of
external costs. LO5
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5.13 LAST WORD
Distinguish between a carbon-tax and a cap-and-trade strategy for
reducing carbon dioxide and other so-called greenhouse gases (that are
believed by many scientists to be causing global warming). which of the
two strategies do you think would have the most political support in an
election in your home state? Explain your thinking.
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