Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 2, Problem 2.3IP
To determine
The inefficiency created by flood insurance.
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Managerial Economics: A Problem Solving Approach
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- The U. S government subsidizes flood insurance because those who want to buy it Iive in the flood plain and cannot get it at reasonable rates. What inefficiency does this sudsidy create?arrow_forwardExternalities Mark owns a butchery. His marginal cost of selling meat is MC = 0.35Q, where Q is the pounds of meat he sells. Mark is in a competitive market and can sell all the meat he wishes for $7 per pound. However, the smell from the butchery bothers the customers of George, the owner of the coffee shop next door. Assume that every pound of meat costs George $1.4 worth of lost business. If Mark focuses on maximizing his profit, how much would he sell? At the profit-maximizing quantity from part a, does selling the last pound of meat benefit the society. Calculate the social marginal cost and compare it to the marginal benefit. Note that here “society” refers to Mark and George. What is the socially optimal quantity of meat sold?arrow_forwardGovernment intervention is one possible solution for market failure. What is one possible reason why a government-controlled used car market may not provide an efficient outcome? SELECT THE CORRECT ANSWER a. Consumers do not buy products from government-controlled markets. b. There is no remedy for market failure in this market. c. The government does not have the resources to control the used car market. d. Government actors may have their own incentives that might not align with market efficiency.arrow_forward
- Bonnie regularly lets her boyfriend drive her car whenever they go on a date. Yesterday, he caused an accident driving Bonnie’s car. Will Bonnie’s insurance company cover the accident? a. No, because insurance is always waived when a car is used by a unlisted driver. b. Yes, because PAP coverage follows the car. c. No, because her insurance company will claim that the boyfriend should have been listed as a regular driver of the car. D.Yes, because Bonnie was present when the accident happened.arrow_forwardGovernment intervention is one possible solution for market failure. What is one possible reason why a government controlled used car market may not provide an efficient outcome?arrow_forwardThis is a form of governmental public policy that has been implemented to reduce the purchase of cigarettes and alcohol. A.Marketing limitations B.Raising the legal age C.Vending machine regulations D.Taxationarrow_forward
- In this time of pandemic , what appropriate bill would you propose to save the dying economy of our country?arrow_forwardwhy does the government provide tornado sirens, street lights and light houses but not radio stations (other than PBS stations)?arrow_forwardBecause the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even though it is federally subsidized. This illustrates: explain your answer The adverse selection problem The moral hazard problem A failure of the market for externalities The existence of positive externalitiesarrow_forward
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