Question

1.   

The market failure of external cost is most likely to result if Peanuts 'R' Us:

keeps secret a discovery that excessive consumption of peanut butter causes nearsightedness.

discards broken peanut shells onto an adjacent recreational area in its production of peanut butter.

is subject to performance standard regulations by the PBRC (Peanut Butter Regulatory Commission).

develops a new peanut butter processing machine that enhances competition.

2.   

The market for apples achieves an efficient allocation of resources when prices respond and send signals to producers and consumers. That set of interactions requires that producers possess:

lobby access to government.

monopoly power.

property rights to the apples they grow.

the ability to set any price they choose for their apples.

3.

If the price of popcorn is $0.50 per box and the price of peanuts is $0.25 per bag, and you have $5 to spend on both goods, the maximum quantity of peanuts that you can purchase is _______ bags.

5

10

20

40

Answer 1

1. Correct option is : discards broken peanut shells onto an adjacent recreational area in its production of peanut butter.

Maket failure occurs when social costs are more than social benefits. Option one is not the answer as there is no information yet. Govt. control can correct market failure.

2.Correct option is : property rights to the apples they grow.

It means that producers are free to respond to price mechanism. Now they are getting higher prices for apples that they grow. Govt. intervention may put price control. Monopoly and price making option leads to inefficient resource allocation.

3.Correct option is 20 units. A person can spend full $ 5 on peanuts. Hence 5/0.25= 20 units.