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1. Give at least three examples of market failures, and how efficiency can be restored. Describe two distinct forms of "government failure" according to the textbook.
2. There has been recent debate over raising the minimum wage. Discuss the possible benefits of raising the minimum wage. Using economic theories we have learned in the class, describe some potential problems with raising the minimum wage. If you have time, think about any conditions on which these predictions might depend.
3. Consider various policies that have been proposed to address the issue of carbon dioxide emissions: (i) Direct regulation of emissions by individual firms; (ii) Subsidies for clean technologies; (iii) Taxes on carbon emissions; (iv) A cap and trade system in which firms receive their initial emissions credits free of charge; (v) A cap and trade system in which the government auctions initial emissions credits. Which policy does economic theory predict will do the best job of reducing emissions in the long run? Why? Which policy will firms prefer (and lobby for)? Why?
4. Compare the role of prices in a market economy with that of a command system. Give examples of some of the problems that sometimes arise in a command system that suppresses prices through price controls. Give at least two examples of policies that can be used to "harness market forces" to achieve progressive goals.
5. State the primary role for government in society. Compare how this role is fulfilled differently under dictatorship and democracy. Give three examples of inefficiencies in democratic systems.
6. Will a democratic government tax at a higher or lower rate than a dictator? Justify your answer.
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