Question

Loggers are much likely to supply wood to the market if property rights are enforced. In the presence of market failures, public policy can improve economic efficiency. Classify the source of market failure in each case listed. Market Failure Market Power Externality There is only one car dealership in a small town, giving the dealership the ability to influence the price of cars. A person smoking in a restaurant emits second-hand smoke that harms other restaurant patrons.

Answer 1

Answer:

much more likely;

There is only one car dealership in a small town, giving the dealership the ability to influence the price of cars. - Market power

A person smoking in a restaurant emits second-hand smoke that harms other restaurant patrons. - Externality

Explanation:

Property rights are an incentive for individuals to create goods that are needed on the market. In other words, when a discrepancy between demand and supply occurs on a specific market, entities, businesses or individuals that create the goods are motivated to meet market needs through enforced property rights.

On the other hand, when there is a lack of property rights that regulate the market, market failures occur. Two common types of market failures include market power and externalities.

The car dealership example shows market power in practice, as the reigning company can dictate car prices.

The second example shows an externality, as there is evident influence (cost or benefit) on the third party, which they cannot change. People are affected (negatively) by smoke they did not create.