Miscellaneous Short Answer Questions When is an outcome (allocation) Pareto effi
ID: 1204328 • Letter: M
Question
Miscellaneous Short Answer Questions When is an outcome (allocation) Pareto efficient? Give two conditions that can cause markets to fail (ie. not produce a Pareto efficient outcome) Why are monopolies generally harmful to the economy? Are there cases where a monopoly might not be so bad? (give at least one example where monopoly power has some benefit compared to a competitive market) Describe a policy remedy for a negative production externality? Describe a policy remedy for a monopoly? What is the most efficient way to raise government revenue. Is it feasible? How can a government raise tax revenue in a per-unit tax while minimizing the size of dead-weight loss. What is the tragedy of the commons and how does it relate to government regulation of publicly-owned resources? Airports tend to be produced and operated by local or regional governments. Why might this be necessary? That is, why might the competitive market not provide the efficient quantity of airport space?Explanation / Answer
a. Pareto efficiency is a state when resources are allocated in the most efficient manner such that no individual can be made better off without worsening other's condition, so the outcome would be Pareto efficient when resource allocation is the most efficient
b. The three conditions to achieve Pareto efficiency are allocative efficiency, technical efficiency and production - allocative efficiency, when these conditions are not met it is not possible to produce a Pareto efficient outcome
c. Monopolies are generally harmul to the economy because:
1. Lack of competition may lead to poor quality of products
2. Products may be unfairly priced, consumers will suffer
3. Service level is generally poor
d. Monopolies can be good in a number of scenarios:
1. When it is controlled (owned) or regulated by the government (public welfare is a priority)
2. When the product / industry is related to limited resources (i.e. natural resources)
3. With monopolies there is a fixed stream of income, where the firm does not worry about competition and rather focuses on R&D leading to innovation
Example could be the US post office