Exercise 9 - Efficiency and Market Failure(2)


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Unformatted text preview: ype of market failure represented and defend your choice briefly: a. An auto repair shop convinces you that you need a $2,000 valve job when all you really need is an oil change. b. Everyone in a neighborhood would benefit if an empty lot were turned into a park, but no entrepreneur will come forward to finance the transformation. c. A bar opens next to your apartment building and plays loud music on its patio every night until 4 a.m. d. De Beers owns almost all of the diamond mines in the world, so the firm restricts the level of output and keeps prices high. Question 3 Which of the following are Pareto‐efficient changes? a. You buy three oranges for $1 from a street vendor. b. You are near death from thirst in the desert and must pay a passing vagabond $10,000 for a glass of water. c. A mugger steals your wallet. d. You take a taxi ride in downtown Manhattan during rush hour....
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