Sample Questions on Unit 1 :
Market failure and Government Failure – Public policy.
1. Does Market always allocate resources efficiently? Explain.
2. Define Pareto optimal recourse allocation?
3. Under what conditions govt. may have to intervene, even if the resource allocation is Pareto
optimal?
4. Define Externalities- both positive & negative? Illustrate with examples.
5. What is a public good? Pure public good? Criteria identifying a public good?
6. What is a merit good? Why is government intervention required to make individuals consume
merit goods?
7. What is “rally’-around- the- flag” effect? Is it justified to have government policies based on
“rally’-around-the-flag” effect? Does it not violate the efficiency criteria of policy choice?
8. Lay down the steps for analyzing a policy study.
9. What kind of market conditions were instrumental in recent sharp rise in onion prices? Do you
think that the govt. intervention in the case of recent sharp rise in onion prices was justified?
10. It is found that in MP-LADS scheme founded by the central govt. , members of Parliament do not
usually allocate resources in the best interest of public. Why? What explains the behavior of
MPs? What kind of reform or further intervention is required?
11. In each case (Q9 & Q10), explain your point of view indicating the required steps for analyzing a
policy case study.
12. What is ‘Free rider’ problem? Give practical examples.
13. What is incremental policy making? Is it relevant to decision making under Indian political
conditions?
14. Do you think there is case of govt. failure to in Q9 & Q10. Explain why?
15. Do you think that there is case for market failure in the following cases? Why? If there is case for
market failure , what kind of govt. intervention is required?
a) National Defense.
b) National Park.
c) Primary Education.
d) Primary Health Care.
e) Drunken Driving Cases.
f) Avoiding use of seat belt while driving.
g) Heavy smoking.
h) Use of drugs.
i) Urban renewal program.
j) Drinking water supply in slums.
k) Pollution due to automobiles.
l) Rising unemploynment in recessionary conditions.