The market mechanism, market failure and government intervention in markets：練習問題

In a market for a demerit good, the marginal social cost (MSC) exceeds the marginal private cost (MPC) due to negative externalities in production. If the government internalises the externality by imposing a Pigouvian tax, which of the following represents the most likely outcome in the long run?

Why might the extension of property rights be a more effective method of correcting market failure from pollution than a simple indirect tax?

In a market for a merit good, such as education, market failure typically occurs because:

A merit good is often under-consumed in a free market. This is primarily because:

Which of the following identifies a source of government failure?

In the context of merit goods, explain why a positive externality in consumption leads to a misallocation of resources in a free market, and identify the point of allocative efficiency using social and private benefit curves.

Evaluate the effectiveness of using tradable pollution permits compared to a carbon tax in correcting a market failure. Consider the certainty of the quantity of pollution reduction versus the certainty of the price for firms.

Distinguish between a pure public good and a quasi-public good by applying the characteristics of non-rivalry and non-excludability to a local toll road compared to national defense.

Identify and explain three distinct reasons why government intervention in a market might lead to a net welfare loss (government failure). In your answer, refer to the concepts of unintended consequences, excessive administrative costs, and information gaps.

Consider the market for demerit goods such as tobacco.

a) Use a marginal private and social benefit diagram to illustrate why tobacco is over-consumed in a free market.

b) Evaluate the relative merits of using indirect taxation versus regulation (such as a ban on advertising) to correct this market failure. Which policy is likely to be more effective if the price elasticity of demand for tobacco is highly inelastic?