No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Thirteen: Market “Failure” and the Role of the Government 319 CHAPTER THIRTEEN ANSWERS 1. False; not true with monopoly, 2. False; it underprovides 3. False; we know that it is not socially optimal, we just can’t tell by how much or what the correct quantity should be 4. True 5. In essence it refers to the social planner’s ability to “know” true preferences, as well as to the ability to aggregate those preferences for a social welfare function. 6. Assign property rights, and use the legal system to enforce those rights. 7. Non-rivalrous and non-excludability (see definition in text). 8. A. No; the product can be excluded from consumption by those who will not pay. B. Yes. Once it is provided for one person, it must be provided for all. C. No, the results of the research could be reserved only for those willing to pay (that doesn’t mean we should not provide this publicly, only that it does not meet the definition of a public good). 9. Car manufacturers. This encourages them to specialize and make distinctive products more to my taste. 10. A bath is a positive externality; Figure 13.7 illustrates the principle. You would see more baths as people made sure not to offend someone. 11. No government action needed; social pressures tend to lead to this result already. 12. A. Empirical evidence shows that while the rich are richer, the poor are getting richer as well. B. In real terms, the poor have access to many more goods that only the rich could afford previously. C. The people who are in each income class do not stay the same over time. 13. False; most income transfers are to the political connected.