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. a. A person smoking in a restaurant emits second-hand smoke that harms other restaurant patrons.
b. A single public utilities company is responsible for supplying electricity for an entire state.
c. As a result, the utilities company can set the price of electricity.

1. Loggers are muchmore likely to supply wood to the market if property rights are enforced.  In the presence of market failures, public policy can improve economic efficiency.

2. Classification of the sources of market failure in each case:

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

Negative externalities

b. A single public utilities company is responsible for supplying electricity for an entire state.

Lack of public goods (as a result of the existence of a monopoly)

c. As a result, the utilities company can set the price of electricity.

Abuse of monopolistic powers.

Explanation:

There are many sources of market failure, including positive and negative externalities, environmental concerns, lack of enough public goods, underprovision of merit goods, overprovision of demerit goods, and abuse of monopolistic powers through the imposition of unwholesome prices and restricted supply.  For example, smokers in a restaurant impose negative externalities (or costs without compensation) on other restaurant patrons.  Monopolies create artificial scarcity of goods and services, intentionally and unintentionally, in order to maximize prices (revenue).

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