Chapter 5: Q 8 (page 120)
Many economists suggest that our nation's legal system is an example of a public good. Does the legal system satisfy the key properties of public good? Explain your reasoning.
Yes, the legal system is a public good.
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A nation’s government has determined that mass transit, such as bus lines, helps alleviate traffic congestion, thereby benefiting both individual auto commuters and companies that desire to move products and factors of production speedily along streets and highways. Nevertheless, even though several private bus lines are in service, the country’s commuters are failing to take the social benefits of the use of mass transit into account.
(a) Discuss, in the context of demand-supply analysis, the essential implications of commuters’ failure to take into account the social benefits associated with bus ridership.
(b) Explain a government policy that might be effective in achieving the socially efficient use of bus services.
Suppose that, as part of an expansion of its State Care health system, a state government decides to offer a \(50 subsidy to all people who, according to their physicians, should have their own blood pressure monitoring devices. Prior to this governmental decision, the market-clearing price of blood pressure monitors in this state was \)50, and the equilibrium quantity purchased was 20,000 per year.
(a) After the government expands its State Care plan, people in this state desire to purchase 40,000 devices each year. Manufacturers of blood pressure monitors are willing to provide 40,000 devices at a price of $60 per device. What out-of-pocket price does each consumer pay for a blood pressure monitor?
(b) What is the dollar amount of the increase in total expenditures on blood pressure monitors in this state following the expansion of the State Care program?
(c) Following the expansion of the State Care program, what percentage of total expenditures on blood pressure monitors are paid by the government? What percentage of total expenditures is paid by consumers of these devices?
Suppose that repeated application of a pesticide used on orange trees causes harmful contamination of groundwater. The pesticide is applied annually in almost all of the orange groves throughout the world. Most orange growers regard the pesticide as a key input in their production of oranges.
(a) Use a diagram of the market for the pesticide to illustrate the implications of a failure of orange producers’ costs to reflect the social costs of groundwater contamination.
(b) Use your diagram from part (a) to explain a government policy that might be effective in achieving the amount of orange production that fully reflects
all social costs.
Explain how market failures such as externalities might justify economic functions of the government.
How might the federal or state governments act to try to boost the external benefits arising from inoculations against the measles virus?
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