What does it mean when there is market failure? Give an example of market failure in the healthcare market?
Question 2
Assume there is no externality involved in this question. The following figure is a demand curve and a supply curve for a good or service under a perfectly competitive market.
2a
If the government wants to tax the producers, what would be the change in the supply curve? Pick up a figure in the study material document.
2b
If the government wants to subsidize the producers, what would be the change in the supply curve? Pick up a figure in the study material document.
2c
If the government wants to tax the consumers, what would be the change in the demand curve? Pick up a figure in the study material document.
2d
If the government wants to subsidize the consumers, what would be the change in the demand curve? Pick up a figure in the study material document.
Question 3
The following figure is a demand curve and a supply curve for a good or service in a perfectly competitive market. However, this equilibrium is done without the consideration of externalities at either demand side or supply side. We assume this equilibrium is done by a private marginal benefit (demand) curve and a private marginal cost (supply) curve.
3a
Suppose this is the market of cigarette. The consumers purchase without considering the impact of secondhand smoke. Therefore, a negative externality exists at the demand side. The social benefit should be lower than the private benefit. Where should be a social demand curve located in the figure? Choose a figure from the study material.
3b
From 3a. Suppose tax and subsidy are the t
Document Preview: Question 1
What does it mean when there is market failure? Give an example of market failure in the healthcare market?
Question 2
Assume there is no externality involved in this question. The following figure is a demand curve and a supply curve for a good or service under a perfectly competitive market.
2a
If the government wants to tax the producers, what would be the change in the supply curve? Pick up a figure in the study material document.
2b
If the government wants to subsidize the producers, what would be the change in the supply curve? Pick up a figure in the study material document.
2c
If the government wants to tax the consumers, what would be the change in the demand curve? Pick up a figure in the study material document.
2d
If the government wants to subsidize the consumers, what would be the change in the demand curve? Pick up a figure in the study material document.
Question 3
The following figure is a demand curve and a supply curve for a good or service in a perfectly competitive market. However, this equilibrium is done without the consideration of externalities at either demand side or supply side. We assume this equilibrium is done by a private marginal benefit (demand) curve and a private marginal cost (supply) curve.
3a
Suppose this is the market of cigarette. The consumers purchase without considering the impact of secondhand smoke. Therefore, a negative externality exists at the demand side. The social benefit should be lower than the private benefit. Where should be a social demand curve located in the figure? Choose a figure from the study material.
3b
From 3a. Suppose tax and subsidy are the two only strategies a government can do. What is your suggestion for government intervention? Tax or Subsidize the consumers or producers? (Hint: how to change the curve(s) operated in the market so the equilibrium price and quantity can be SMB=SMC? Refer to the impact of government intervention you did in Question 2.)
3c
Suppose this...