Question 1. Country A is a country that produces a variety of goods and services. Considering the policies/events listed below, how might country's A production possibilities frontier change (ie shift out or in)?
a. The government deregulates industries.
b. The government increases military spending.
c. The government increases taxes collected from business.
d. Public schools decrease college tuition.
e. OPEC oil embargo.
Question 2. Define the term market failure. What can lead to market failure?
Question 3. The following table shows the marginal private cost (MPC) and the marginal social cost (MSC) of a chemical factory.
|
Tons of Chemicals
|
MPC
|
MSC
|
|
1
|
100
|
120
|
|
2
|
110
|
130
|
|
3
|
120
|
140
|
|
4
|
130
|
150
|
|
5
|
140
|
160
|
Answer the given questions:
A. What is the marginal cost of the factory’s externality? Is it constant at all quantities?
B. If the factory is a perfectly competitive firm and is not required by the government to internalize its external cost, how many tons should the factory produce, given that the market price of a ton of chemicals is $130?
C. If the factory is a perfectly competitive firm and is required by the government to internalize its external cost, how many tons should the factory produce, given that the market price of a ton of chemicals is $130?
D. What is the difference between a negative and a positive externality? Give an example of each.
E. What is a government failure? List four reasons why it might occur.