Ch. 4 (Questions about) Short Answers, Markets

Ch. 4 (Questions about) Short Answers, Markets



1. Choose three of the requirements for an efficient market and explain how they support its proper functioning.


2. The economic problem is one of deciding how to allocate scarce resources among competing uses. How might prices be more efficient than government in rationing goods and services? When might the outcomes of the price system conflict with ethical considerations?


3. Consumers Union tests products and reports on their quality to the general public. What effect would you expect this to have on the prices of high-quality products?


4. Many people build houses in flood plains. How does moral hazard explain such behavior?


5. Define “public good.” Why are many public goods provided by government?


6. Why is it difficult for a free market to provide a good in the presence of the free rider problem?


7. A pundit once said that the way to save endangered species is to make them edible and give property rights to those living in the area populated by the animals. Explain the rationale for this proposal.


8. Define “externality.” Provide an example of a negative externality and a positive externality. Why are externalities considered to lead to market failure?