Answer to Question #80906 in Macroeconomics for krish

Question

Explain whether each of the following government
activities is motivated by a concern about
equality or a concern about efficiency. In the
case of efficiency, discuss the type of market
failure involved.
a. regulating cable TV prices
b. providing some poor people with vouchers
that can be used to buy food
c. prohibiting smoking in public places
d. breaking up Standard Oil (which once
owned 90 percent of all oil refineries) into
several smaller companies
e. imposing higher personal income tax rates
on people with higher incomes
f. instituting laws against driving while
intoxicated

Answer 1

a) Regulating cable TV prices is an efficiency enhancing measure that is aimed at eradicating the market failure of monopoly and ensuring that prices are affordable.
b) By providing some poor people with vouchers that can be used to buy food, the government is concerned with fairness to ensure everybody can access essential products.
c) By prohibiting smoking in public places, the government is concerned with efficiency and aims to discourage public smoking. In this case, the market failure is the negative health effects of smoking.
d) Breaking up Standard Oil (which once owned 90 percent of all oil refineries) into several smaller companies. This measure addresses efficiency by dealing with the market failure of monopoly in the oil market.
e) Imposing higher personal income tax rates on people with higher incomes is aimed at enhancing fairness through the redistribution of resources.
f) By instituting laws against driving while intoxicated, the government is concerned with efficiency. The measure helps to correct the market failure of rad accidents caused by drunk driving.