Macroeconomics
Macroeconomics
11th Edition
ISBN: 9781260506891
Author: Colander
Publisher: MCG
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Chapter 3, Problem 1QAP

(a)

To determine

Problems relating with government intervention.

(b)

To determine

Further effect of central planner’s interference on family choices.

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Local government bans on plastic grocery bags due to environmental concerns have led to increased emergency room visits and deaths related to harmful bacteria such as E. coli, as many people do not wash their bags after each use.   Which of the following best characterizes the statement?   The statement demonstrates that even when government policies are enacted with good intentions, they do not always guarantee good outcomes due to unintended consequences and secondary effects.   The statement demonstrates that normative economics is often confused with positive economics.   The statement is an example of the fallacy of composition because all foods do not contain harmful bacteria.   The statement shows that all environmental regulations have benefits that exceed the costs.
"Vernon Smith started a series of experiments to see whether basic predictions of the standard economic model about markets would prove correct. [...] Basically, the predictions proved good. A stunning result! Maybe, therefore, it doesn't matter if people are not like homo oeconomicus; the standard economic model can still work." (quote shortened, source: Edward Cartwright in his textbook "Behavioral Economics" (3rd edition, p. 8)). What kind of criticism of the standard economics model does Cartwright refer to? Explain why Vernon's findings can be used to support and uphold the standard model of microeconomics despite unrealistic assumptions?
If you were the Prime Minister of the country, would you be more interested in your economic advisers' positive views or their normative views? Explain why.
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