Economic

Revision Questions:

Ch 11 – Market failure

1. Explain how each of the following are examples of market failure:

A. Positive/ Negative externality

B. Public good/ Common Resourses/Quasi-public goods

C. adverse selection

D. moral hazard

Choose one and explain how government intervention can reduce market failure. (10 marks)

2. The export of lead concentrate created serious health problems to the residents of Esperance. What type of externality is this? Does the market over or under-produce lead? Illustrate this externality identifying MPC, MSC, MPB, MSB. What type of government policy would be best in this situation?

3. What is a common resource? How is it different to a public good? Provide some current examples of the ‘tragedy of the commons’. Is commercial whaling a modern example of the tragedy of the commons? Explain whether you agree or disagree

4. a. What is a business cycle? Describe the effects of the business cycle on the unemployment rate. (5 marks)

b. Distinguish between the two main types of inflation. Why is inflation considered a problem? (5 marks)

5. Distinguish between the long run aggregate supply (LRAS) curve and the short run aggregate supply (SRAS) curve. What factors can increase potential GDP? What effect does an increase in the price of oil have on the SRAS curve and on the LRAS?

6. a. Explain the difference between cost and demand inflation (Use a model to illustrated). What are the costs associated with a high rate of inflation. (5 marks)

b. Explain how GDP is measured and outline the shortcomings of GDP as a measure of economics wellbeing. (5 marks)

7. Use the aggregate demand/ aggregate supply model to explain the economic impact of each of the following:

a. A significant rise in the price of oil

b. A stock market crash

In each case, explain how policy makers should respond? (10 marks)

8. A. Distinguish between the AD curve, the...