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Chapter 5: Q. 5.1 (page 100)
Explain how market failures such as externalities might justify economic functions of the government.
Yes.
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Displayed in the diagram below are conditions in the market for residential Internet access in a U.S. state. The government of this state has determined that access to the Internet improves the learning skills of children, which it has concluded is an external benefit of Internet access. The government has also concluded that if these external benefits were to be taken into account, 3 million residents would have Internet access. Suppose that the state government鈥檚 judgments about the benefits of Internet access are correct and that it wishes to offer a per-unit subsidy just sufficient to increase total Internet access to 3 million residences. What per-unit subsidy should it offer? Use the diagram to explain how providing this subsidy would affect conditions in the state鈥檚 market for residential Internet access.
The French government recently allocated the equivalent of more than $120 million in public funds to Quaero (Latin for 鈥淚 search鈥�), an Internet search engine analogous to Google or Yahoo. Does an Internet search engine satisfy the key characteristics of public good? Why or why not? Based on your answer, is a publicly funded Internet search engine a public good or a government-sponsored good?
How does a city's decision to assess substantial fines on rail operators that persistently generate traffic congestion affect the supply curve for rail services within the city?
Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does not assign for the remaining items. Would externality be more or less in this nation than in a country such as the United States? Explain.
Consider panel (b) of Figure. Assume that a careful study of the likely transmission of influenza in light of a changed population distribution has revealed that the external benefits from inoculations are greater than currently displayed in the graph. In light of this information, is the under allocation of resources to the provision of flu-vaccine inoculations larger or smaller than indicated in panel (b)?
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