Exercises 4. Q1: From the perspective of the book, what (further) intellectual limitations of economics can be mentioned?

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?

(c) political considerations are ignored

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)

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

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?

(b) free of value judgments and can 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

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

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

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.

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

(c) telecommunication

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.

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

Q2: What type of market failure is it?

(c) negative externality

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