Question

Which of the following government activities is motivated by a concern about efficiency? Check all that apply.

A. Breaking up Standard Oil (which once owned 90% of all oil refineries) into several smaller companies

B. Regulating cable TV prices

C. Prohibiting smoking in public places

D. Instituting laws against driving while intoxicated

E. Providing some poor people with vouchers that can be used to buy food

F. Imposing higher personal income tax rates on people with higher incomes

The market failure associated with cable TV arises from the (externality associated with, market power of???)   the cable TV firm, which allows the firm to have a substantial influence on market prices.

Answer 1

A. Breaking up Standard Oil was necessary because the same had become a monopoly which implies there was a consideration regarding the productive and allocative inefficiencies. Similar is the case with cable TV prices. Now the reason for prohibiting smoking in public places is the presence of negative externalities which tend to reduce social efficiency.

Option A B C and D are related to efficiency while E and F are related to equity. Select A, B, C, and D

The market failure associated with cable TV arises from the market power of the cable TV firm.