Question

Which of the following best represents a market failure

		At the beginning of the pandemic, many grocery stores ran out of toilet paper.
		Five years ago Mylan pharmaceuticals held 90% of the market with its EpiPen that administers life-saving medication in case of a severe allergic reaction. Between 2014 and 2016, the price of  EpiPen rose from just under $300 to nearly $750 per twin pack.
		The year after the Philadelphia Eagles won the Super Bowl, ticket prices for the opening game of the season on Stub Hub were about 20% higher than the previous year.
		During the pandemic, demand for oil dropped sharply and the price of oil fell from just over $60 a barrel in the beginning of January 2020 to just under $20 per barrel in the beginning of May 2020.

If auto insurers did not have access to individual driver's history of moving violation tickets, we would expect

		the imperfect information problem to be more severe and auto insurance premiums would be higher only for high-risk drivers
		the imperfect information problem to be more severe but there would be no impact on auto insurance premiums
		the imperfect information problem to be more severe and auto insurance premiums would be higher for everyone
		the imperfect information problem to be more severe and auto insurance premiums would be lower for everyone

QUESTION 11

1. Governments provide free public education for kindergarten through high school because

   		there are positive externalities when individuals are educated and the subsidy helps to reduce the imperfect information problem
   		there are positive externalities when individuals are educated, but the subsidy does nothing to change how many people are educated
   		there are positive externalities when individuals are educated and without the subsidy education would be underproduced (i.e., there would too few people receiving K-12 education relative to the efficient outcome).
   		there are negative externalities when individuals are educated and without the subsidy education would be overproduced (i.e. too many people would receive K-12 education relative to the efficient outcome).

QUESTION 22

1. If oil prices increased by 100%, but all other prices remained the same, we would expect

   		both core and overall PCE to rise by the same proportion
   		overall PCE to increase, but core PCE to be unchanged
   		neither overall nor core PCE to change at all
   		core PCE to increase, but overall PCE to be unchanged

Answer 1

Answer (1) During the pandemic, demand for oil dropped sharply and the price of oil fell from just over $60 a barrel in the beginning of January 2020 to just under $20 per barrel in the beginning of May 2020.

Explanation - The above situation clearly indicates the market failure as due to the COVID-19 pandemic and global lockdown during April 2020 and May 2020 the prices of the oil fell sharply and it resulted in the fall of global share markets.

Answer (2) The imperfect information problem to be more severe and auto insurance premiums would be higher for everyone

Explanation- As the insurance company will not have the data about any individual's traffic violation tickets and hence they will not be able to classify the drivers as low risk and high risk and hence the insurance premium will be high for everyone.

Answer (3) there are positive externalities when individuals are educated and the subsidy helps to reduce the imperfect information problem

Explanation- In order to maintain the positive externalities and avoid imperfect information problems the government provides a subsidy.

Answer (4) Overall PCE to increase, but core PCE to be unchanged.

Explanation- The overall Core Personal Consumption Expenditure Price Index  will increase as it includes the energy spent, however, core PCE will remain the same as it does not include the energy spent.