ProblemSet11bANSWERS - UBGA 118: International Trade Fall...

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UBGA 118: International Trade Fall 2008 Problem Set #11b ANSWERS (Due Tuesday, December 9, 2008) 1. Article Analysis: Read this article and answer the following questions. Howard, W. French, “As China's Economy Roars, Consumers Lack Defenders”. The New York Times, July 08, 2007. The URL is: . a. The textbook considers several market failures in international trade: externalities (in chapter 11), internal and external economies of scale (in chapter 6), and failures in labor or financial markets (chapter 9). It does not directly consider a failure caused by imperfect information. Imperfect information, in particular asymmetric information, can cause a market failure called a moral hazard. In general, a moral hazard occurs when one party with more information about a transaction has a tendency to behave inappropriately from the party with less information. Please describe the issue in the article using the language of a moral hazard: Who is the party with more information? Who is the party with less information? What is the information about? What is the inappropriate behavior? Consumers of toothpaste, food, drugs, et cetera are the party with less information; those with more information are the producers or sellers of these products. The information is about the quality or safety of the products. Inappropriate behavior is selling deceptive or unsafe products without full information; consumers would not buy them if they had full information. b.
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This note was uploaded on 07/31/2009 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at University of California, Berkeley.

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ProblemSet11bANSWERS - UBGA 118: International Trade Fall...

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