Because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly-owned spawning grounds. At first, owners of fishing boats complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. With the restriction, each fishing boat ends up catching more fish than it did before the restriction was in place. Which of the following principles of economic interaction best describes this scenario? A-Markets usually lead to efficiency. B-When markets do not achieve efficiency, government intervention can improve overall welfare. C-Markets allocate goods effectively. D-There is a tradeoff between equality and efficiency. 9. Property rights and market failures Loggers are much____ likely to supply wood to the market if property rights are enforced. In the presence of market failures, public policy can improve economic efficiency. Classify the source of market failure in each case listed. Market Failure Market Power Externality A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream. A single public utility company is responsible for supplying electricity for an entire state. As a result, the utilities company can set the price of electricity.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. The interaction of individual choices

Because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly-owned spawning grounds. At first, owners of fishing boats complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. With the restriction, each fishing boat ends up catching more fish than it did before the restriction was in place.

Which of the following principles of economic interaction best describes this scenario?

A-Markets usually lead to efficiency.

B-When markets do not achieve efficiency, government intervention can improve overall welfare.

C-Markets allocate goods effectively.

D-There is a tradeoff between equality and efficiency.

9. Property rights and market failures

Loggers are much____ likely to supply wood to the market if property rights are enforced.

In the presence of market failures, public policy can improve economic efficiency.

Classify the source of market failure in each case listed.

Market Failure	Market Power	Externality
A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream.
A single public utility company is responsible for supplying electricity for an entire state. As a result, the utilities company can set the price of electricity.

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