AP Micro: Market Failures and Externalities

A market failure is best described as

• The idea that market forces of supply and demand always provide the maximum benefit for society
• The idea that market forces of supply and demand do not always provide the maximum benefit for society
• The concept that a decision made by one party can have negative effects on another party
• The concept that a decision made by one party can have positive effects on another party

A beekeeper who produces honey helps the apple orchard next door because the extra bees help pollinate the apple trees. This an example of

• a. Positive Externalities

• b. Negative Externalities

• c. Vertical merging

• d. Collusion

An economic side effect of a good/service that generates benefits or costs to someone other than the person deciding how much to produce or consume.

• a. Side effects

• b. Public Goods

• c. Externalities

• d. Monopolies

Goods that are provided by the government (and paid for through taxation) are known as: 

• Private goods
• Public Goods
• Cartels
• Commodities 

An essential characteristic of a public good is that it is non-excludable. This means that

• public goods are of equal benefit to all consumers.

• there is no opportunity cost in the provision of public goods.

• people could consume the good without paying for it.

• the government should not levy a tax for providing public goods.

Negative externalities can be best described as

• When the consumption/production of a good or service has a negative impact on a third party

• When the consumption/production of a good or service has any impact on a third party

• When the consumption/production of a good or service has a positive impact on a third party

• When the consumption/production of a good or service depletes the access for a third party

A government might tax a good that creates negative externalities in order to try to:

• Increase price and consumption of the good to provide firms with extra revenue
•  Make the information avaliable more asymmetric
• Decrease demand for the good and thus increase the consumer surplus
• Decrease consumption of the good and thus reduce the triangle of welfare loss

Getting a flu shot is an example of a ________ externality

• Negative
• Neutral
• Positive

By-products of production or consumption that impose costs on third parties are known as

• negative externalities
• rival externalities
• positive externalities
• exclusive externalities 

What is the underlying mechanism which explains why a good does not become a private one?

• Tragedy of the Commons
• Negative Externalities
• Positive Externalities
• Free Rider Problem