Refer to Table 6-3. Over what range of prices is the demand ...

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Refer to Table 6-3. Over what range of prices is the demand inelastic?
 
  A) between 12 and 16 B) over the entire range of prices
  C) between 8 and 16 D) between 2 and 8

Question 2

Does the presence of asymmetric information necessarily imply that governments should intervene in a market?
 
  What will be an ideal response?

[lkoler]

Answer to Question 1

D

Answer to Question 2

One of the most important reasons for government intervention is market failure. Asymmetric information in a market affects the functioning of the invisible hand and so is an example of market failure. Nonetheless, asymmetric information might not necessarily require government intervention. First, in some cases there are market solutions that can address the problem; efficiency wages, warranties, and third-party certification are examples of market solutions to asymmetric information problems. Second, it might be difficult for the government to gain enough market knowledge to significantly improve market outcomes. But, even if government intervention is not warranted to address the asymmetric information problems in markets on efficiency grounds, it may be justified to ensure a more equitable distribution of income and resources in the society.