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Homework answers / question archive / 10
10. Which of the following is a 2 points case of market failure in the context of the provision of pure public goods? * Consumers pay higher prices for a good following a shortage of supply. A government decides to supplement the private sector provision of a good. A government finds it necessary to O provide a range of goods not offered by the private sector. A government's financial support for O an industry leads to over-supply and a loss of efficiency.
2 points 12. The benefit of an increase in a government subsidy to milk producers will go mainly to consumers in the form of a lower price when: * Demand for milk is price elastic. Supply of milk is perfectly inelastic. O Demand for milk is price inelastic. O Demand for milk is income elastic.
10) first option is correct. Market failure is the failure of the market in the provision of resources. The other three examples are related to government failure while the first is related to market failure.
12) demand is price inelastic. in this case the subsidy will increase the supply and shift the supply curve to the right. The price consumers are going to pay will decrease more than the price increased for producers.
