Problem Set #6 Points Distribution

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Presentation transcript:

Problem Set #6 Points Distribution Unit 6: Market Failures Problem Set #6 Points Distribution

1. Public Goods a. Characteristics b. Public Sector 1 Point- Identifies non-excludability 1 Point- Defines non-excludability 1 Point- Identifies non-rivalry (shared consumption) 1 Point- Defines non-rivalry 1 Point- Clear example b. Public Sector 2 Point- The government (Public sector) must provide the good to everyone 1 point- If left up to the free market not enough would be produced 2 Point- Explains that Free Riders make profit impossible

2. Externalities SUVs and Negative externalities (10 Points) i. 1 Point –first clear externalities explaining who pays spillover costs 1 Point- second clear externality explaining who pays costs ii. 1 Point- Correct graph with two S curves labeled MSC and MPC 1 Point- Free market P and Q 1 Point- Socially optimal P and Q

iii. 1 Point- MSC>MSB 1 Point- Good is overproduced 1 Point- Free market fails to produce because it doesn’t include spillover cost iv. 1 Point- Tax 1 Point- Graph shows left shift in supply

2b. Externalities b. Parks and positive externalities (10 Points) i. 1 Point –first clear externalities explaining who pays spillover benefits 1 Point- second clear externality explaining who pays benefit ii. 1 Point- Correct graph with two D curves labeled MSB and MPB 1 Point- Free market P and Q 1 Point- Socially optimal P and Q

iii. 1 Point- MSC<MSB 1 Point- Good is underproduced 1 Point- Free market fails to produce because it doesn’t include spillover benefits iv. 1 Point- Subsidize (specify producer or consumer) 1 Point- Graph shows right shift in supply (subsidy to producers) or right shift in demand (subsidy to consumers)

3. Anti-Trust Laws a. Purpose 2 Points- To promote competition and prevent monopolies 1 Point- Monopolies charge too much and provide too little (higher price, lower quantity) 1 Point- Monopolies are not productively efficient 1 Point- Monopolies are not allocatively efficient b. Tax or Subsidize 1 Point- They should subsidize 2 Point- Subsidizing lowers MC curve so firms make more 2 Point- Taxing increases MC so they make less

3. Anti-Trust Laws c. Microsoft 2 Points- Quality Summary 2 Points – Identify what they did to limit competition 1 Point- The student obviously read and understood the section

4a. Redistribution of Income a. Distribution of Income: Types of Taxes 1 Point- Defines Progressive (as income goes up, percent paid goes up) 1 Point- Defines Regressive (as income goes up, percent paid goes down) 1 Point- Defines Proportional (equal percentage of total income) 2 Point- Quality Examples (income, sales tax, property tax)

4. Redistribution of Income b. Lorenz Curve 2 Point- The given average doesn’t show how money is distributed or reflect individual’s standard of living. 1 Point- The poor and extremely rich skew the data 2 Point- Government compares perfect equality to actual equality 2 Point- The further the Lorenz curve is from the line representing equal distribution, the further the society is from income equality 3 Point- Lorenz Curve clearly graphed

6 Points FRQ#1

8 Points FRQ#2