Suppose Hang Tuah has 10 keris and 2 arrows and Hang Jebat has 2 keris and 2 arrows. If this allocation is considered as Pareto Optimal, what mutually beneficial exchange could be made?

a.

Hang Jebat should give up arrows to get more keris.

b.

Hang Tuah should give up keris to get more arrows.

c.

None. No beneficial exchange can result that benefits one party without hurting the other.

d.

Arrows should should be taken from Hang Tuah and given to Hang Jebat to equalize their weapons.

Economists refer to "market failure" as .

a.

resulting from excess supply that require government intervention

b.

the free market system producing results that economists do not consider to be socially optimal

c.

excessive profits earned in the free market economy

d.

production of a good that consumers do not need

Governments may not have the incentive to correct a market failure because .

a.

governments may miscalculate the tax rate to be applied

b.

governments normally involve political decisions, which are reflected by individual interest to gain more for themselves

c.

governments rarely have the information required to correct the market failure

d.

the benefits are greater than costs of correcting the market failure

Which of the following examples describe the "adverse selection problem"?

a.

Health insurance purchasers possess better information about their own health status compared to insurance companies.

b.

Individuals will not pay for goods and services if they can receive the benefits for free.

c.

Individuals who are insured are less likely to take proper precautions.

d.

Malaysians suffer from air pollution and haze due to illegal land clearing practices by Indonesian farmers.

The diagram below refers to a situation where .

Benefit / Cost (RM) Faedah / Kos MSC (Marginal Social Cost) G P1 H MSB (Marginal Social Benefit) MPB (Marginal Private Benefit) 0 Quantity / Kuantiti