Exercises 4

A)

Q1: From the perspective of the book, what (further) intellectual limitations of economics can be mentioned?

(a) the neglect of the role of the market in economic affairs

(b) the neglect of the role of the state in economic affairs

(c) an overemphasis of the role of the state in economic affairs

(d) an overemphasis of the role of the government in economic affairs

 

Q2: From the perspective of the book, what (further) intellectual limitations of economics can be mentioned?

(a) political considerations are overemphasised

(b) economic considerations are ignored

(c) political considerations are ignored

(d) economic considerations are totally forgotten

 

Q3: According to the textbook, both Franklin D. Roosevelt and Ronald Reagan belonged to the group of modern liberals. However, there was a strong difference between the two regarding their commitment to equality (equity) and freedom (liberty). (p. 65)

(a) Roosevelt preferred freedom, while Reagan put the emphasis on equity.

(b) Roosevelt preferred liberalism, while Reagan put the emphasis on conservatism.

(c) Roosevelt preferred equity, while Reagan put the emphasis on freedom.

(d) Roosevelt was a Democrat, while Reagan put the emphasis on equity.

 

Q4: “If you took all of the economists in the country and laid them end to end, they'd never reach a conclusion.” (George Bernard Shaw)

http://a-level.econoref.net/articles/introduction-to-economics/positive-vs-normative-economics/

 

Accordingly, what does positive economics mean?

(a) full of value judgments and can be tested for accuracy

(b) free of value judgments and can be tested for accuracy

(c) free of value judgments and cannot be tested for accuracy

(d) full of value judgments and cannot be tested for accuracy

 

B) Case study on market failures and state regulation.

Please read the following article and answer the questions. “Why Hong Kong needs and anti-trust regime?” written by Mark Williams, published on May 1 2007 in the Financial Times.

http://economistsview.typepad.com/economistsview/market_failure/index.html

and scroll down to “Market Failure in Everything: The Hong Kong Edition”

 

Q1: How can the Hong Kong economy be best described?

(a) a laissez-faire economic system

(b) a highly regulated economy

(c) a mixed economy

(d) a welfare state

 

Q2: Why has Hong Kong been regarded by many as the paradigm of classical market liberalism?

(a) It was said to be the world’s leading capitalist city where market failures did exist in great number.

(b) It was said to be the world’s freest economy where antitrust-type rules were both unnecessary and harmful.

(c) It was said to be the world’s largest economy where antitrust-type rules were both necessary and sufficient.

(d) It was said to be the world’s least free economy where antitrust-type rules prevailed in each and every segment of the society.

 

Q3: What is the main problem now in Hong Kong regarding economic competition?

(a) While the external trading sector is competitive, the non-traded domestic sector is dominated by only a few, providing a non-competitive environment.

(b) Currently, there is no problem at all.

(c) The non-traded domestic sector is dominated by a large number of family-owned small and medium sized companies.

(d) While the internal sector is competitive, the external trading sector is dominated by a few only, providing a non-competitive environment.

 

Q4: Previously, in which sector was Hong Kong successful with its pro-competition rules?

(a) electricity and gas

(b) postal services

(c) telecommunication

(d) software industry

 

Q5: Accordingly, which of the following is the definition of market failure?

(a) Free markets fail to deliver an optimal (or efficient) allocation of resources.

(b) Incomplete markets fail to deliver an optimal (or efficient) allocation of resources.

(c) Indifferent markets are not able to deliver an optimal (or inefficient) allocation of resources.

(d) Invisible hands fail to deliver an optimal (or inefficient) allocation of resources.

 

C) Look at the picture on the following webpage:

http://www.tutor2u.net/economics/presentations/aseconomics/marketfailure/IntroductionMarketFailure/default.html

 

Q1: Why is there a market failure in the picture?

(a) environmental pollution

(b) the exploitation of natural resources

(c) incomplete markets

(d) asymmetric information

 

Q2: What type of market failure is it?

(a) positive externality

(b) complete markets

(c) negative externality

(d) incomplete markets