unit 3 chapter 3 economics

Question 1

public goods (explain them)

Answer 1

• non rivalrous
• non excludable
  underallocation of resources due to no profit being made from them
  does not achieve allocative efficiency
  free rider issue
  eg. fireworks and street lights

Question 2

common access resources (explain them)

Answer 2

• depletable (rivalrous)
• non excludable
  fails to achieve inter temporal efficiency
  over consumed (don’t talk about allocation, these are resources)
  eg. fish stock, water in murray river

Question 3

externalities (negative)

Answer 3

cost imposed on third parties that have nothing to do with the transaction
when social costs outweigh the private costs and arent taken into consideration it shows an overallocation of resources in this area
consumption eg. smoking
production eg. environmental hazards

Question 4

externalities (positive)

Answer 4

benefit imposed on third parties that have nothing to do with the transaction
when the social benefits outweigh the private benefits and aren’t taken into consideration it shows an underallocation of resources in this area
consumption eg. vaccinations
production eg. training and education

Question 5

asymmetric information

Answer 5

imbalance in information about g + s between consumer and supplier
buyers make suboptimal decisions leading to suboptimal outcomes
over allocating to things society doesn’t want and under allocated to things society needs if they knew all the knowledge

Question 6

what are the forms of government intervention

Answer 6

1. tax (indirect)
2. subsidies
3. regulations
4. direct provision
5. advertising

Question 7

direct provision (explain please)

Answer 7

government directly providing to supply market by adding goods and services
increase in supply
used for public goods and positive externalities

Question 8

subsidies (explain)

Answer 8

direct payment (tax break) to suppliers to encourage production
reduces their cost of production increasing market supply
used for substitute of negative externalities, and positive externalities

Question 9

intention of government within market faliure

Answer 9

achieve effeciency

Question 10

indirect taxes (explain)

Answer 10

opposite of subsidies
payment is levied on producers (affects supply first)
producers less willing and able to produce (less profitable)
increases cost of production
trying to make suppliers count for their social costs
used for negative externalities

Question 11

regulations and laws

Answer 11

government enforces laws that intervene in markets to achieve efficiency
depends on the market failure but can both increase and decrease supply (not for common access resources however)
it fixes the over consumption of such products
used for asymmetric information and C.A.R

Question 12

advertising

Answer 12

government will fund advertising to change consumer preference, affecting demand first and forcing suppliers to respond after
can both increase and decrease demand depending on the market failure
positive externalities - increases demand
negative externalities - decreases demand

Question 13

government failure example

Answer 13

tobacco exise tax

Question 14

what is government faliure

Answer 14

a situation when the government tries to intervene and fails to improve the allocation of resources or makes it less efficient when compared to the free market outcome

Question 15

what happened when there was an increase in tobacco exise tax in 2013-2015

Answer 15

• black market emergence
• regressive impact
• negative externalities

Question 16

black market emergence

Answer 16

high excise tax led individuals to illegal activities like smuggling tobacco and creating an underground market where funds are generated to further drive these illegal activities
government had to allocate more resources to crime prevention and regulatory enforcements rather then trying to reduce smoking rates and improve public health outcomes
drives government resources away from essential services such as healthcare and education

Question 17

regressive impacts

Answer 17

regressive nature of taxes disproportionately affects lower income individuals pushing them towards illicit tobacco trade
worsens socio economic trade lowering: government will have to address these inequalities allocative efficiency

Question 18

negative externalities

Answer 18

introduces more negative externalities including crime rates, health risks associated (bird feathers)
diminish overall allocative efficiency intended by government intervention