Government intervention can increase total welfare when:

a) there are costs or benefits that are external to the market.

b) consumers do not have perfect information about product quality.
c) a high price makes the product unaffordable for most consumers.
d) all of the above.
e) a and b only.
Explain in two short sentences.

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its
government purchases $3 billion worth of goods and services each year, collects $6 billion in taxes
and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion.
What is the investment in Growpaw?
Answer ($5 billion)
( $20B- 3B-6B-2B-4B)

Identify which input (labor, human capital, physical capital, raw materials, or knowledge) is affected
in the following scenario.
An earthquake that destroys a factory.
a) Human capital,
b) Physical capital,
c) Raw materials,
d) Knowledge.
Explain in two short sentences.

( Factory is considered a physical capital. If an earthquake destroys physical capital, this will affect
physical capital)