Economics - Revision market mechanism and failure

When the free market leads to a misallocation of resources in an economy it is...

• Market failure

• public good

• a positive externality

• a negative externality

Positive externalities are present if:

• social costs exceed private costs

• private benefits exceed private costs

• production leads to private benefits

• private benefits are less than social benefits

A good which exhibits some, but not all, of the characteristics of a public good

• non-excludable good

• non-rival good

• quasi-public good

Partial market failure exists when:

• a product is both non-excludable and non-rival

• there is excess supply in a market at the current market price

• a market exists but there is under-production

• the market can only be competitive with government subsidies

The rationing function of prices means that:

• a rise in price will worsen any shortage of a product

• changes in prices provide information to producers and consumers about changes in demand and supply

• an increase in prices will encourage more firms to enter an industry

• when there is a shortage of a product, prices will rise and put some consumers off buying the product

A good is non-excludable if

• its price is zero

• it is not possible to prevent non-paying customers from enjoying it

• it is supplied by the government rather than the free market

• one person's use affects the quantity available for others

The free market has no incentive to provide certain goods as people are awaiting others reactions/moves. This is:

• the signalling function

• the free-rider problem

• the tragedy of the commons

• imperfect information

Not all products that result in positive or negative externalities in consumption are either merit or demerit goods

• True

• False

Tragedy of the commons is the (a)   of resources. E.g oceans, forests, atmosphere.

A merit good is a good that would be over-consumed in a free market.

• True

• False