Chapter 3&5 B

Question 0

Do markets perform in a Pareto efficiency? Why? What are te market failures? Who helps control these failures?

Answer 0

No,
because of market failures, the gov tries to improve these failures.
1. imperfect competition
2. public goods
3. externalities
4. informational problems

Question 1

what is the job of gov (normative analysis) ?

Answer 1

it’s not to question or change given preferences and tastes, but to create an environment in which individuals can pursue own objectives as effectively and efficiently as possible

Question 2

Explain the different market failures

Answer 2

info problems: assumes parties to a transaction have relevant information. this is not the case. imperfect information. gov sets regulations so consumers will survive without perfect information. ex. light bulb standards.

Externalities: third party effects. when some are affected by the activities of others. no markets to price the effects. (pollution, smokers). can be pos or neg, most are neg.

public goods: parks, national defense, lighthouses. mkt failure bc private markets won’t produce them. bc they are non-rival and non-exclusive. free riders.

Imperfect competition: many industries are not perfectly
competitive. bc some have control over price or there are barriers to entry. when this exists, firms charge higher prices and produce less than what is optimal. gov tries to promote competition.

Question 3

Imperfect competition is what? why?

Answer 3

it’s a market failure bc it causes a good to be over
priced and under produced. under perfect competition, private
markets achieve Pareto efficiency.

Question 4

What is needed for perfect

competition? (3)

Answer 4

• no control over price
• no barriers to entry
• buyers and sellers must have access to perfect info.

Question 5

What is necessary for private enterprises to do well for a society?

Answer 5

there must be perfect competition.

Question 6

What are the differences between economic interest groups and social interest groups?

Answer 6

social interest groups:
major influence on policies.
they vote in groups. compiled of people with same views. ex. seniors. nothing better to do. well organized.

Economic interest groups:
major influence on public policy. lobbyists. they provide insight
to the industry. provide balance to biases that may exist in the bureaucracy. typically look at things with a normative analysis. well organized.

Question 7

Why does positive not align with normative?

Answer 7

• Self interests- taking bribes to help certain people.
• mistakes
• event based

Question 8

what is transfer seeking?

Answer 8

process of devoting resources to trying to obtain economic benefits by having then redistributed from others rather than creating new wealth. ex. a major corp trying to persuade the gov to provide a special grant to the firm. or litigation. sueing one another. ex- a thief trying to steal from it’s victim.

Question 9

Consequences of transfer seeking? (3)

Answer 9

1. resources consumed in xfer seeking are wasted from te social point of view
2. there is a wealth xfer from society at large to the xfer seeker
3. the policy is induced by xfer seeking usually has pure waste associated with it.