Market Failures Quiz

Driving a car on crowded highway produces

• a negative externality.

• a positive externality.

Apartment dwellers who buy fire alarms or fire extinguishers generate a

• negative externality.

• positive externality.

A tax equal to the external cost on firms that emit pollutants would

• not reduce pollution levels at all.

• provide firms with the incentive to increase the level of activity creating the pollution.

• provide firms with the incentive to decrease the level of activity creating the pollution.

• provide firms with little incentive to search for less environmentally damaging production methods.

What is the free rider problem?

• scarcity even when you pay for a good

• Reaping all the benefits without contributing

• Common goods that don't have a price

• none of the above

What is one reason that local law enforcement is considered a public good?

• Everyone in the community benefits from it.

• Nobody in the community has to pay for it.

• Private firms make a profit from producing it.

• Individual citizens pay directly for it.

Which of the following is an example of a positive externality resulting from an outdoor band concert?

• An elderly woman in her apartment hears a song that she liked as a child.

• A pair of endangered birds leave their nest in a nearby tree when the concert starts.

• A pizza parlor closes early, because all of its customers are at the concert.

• A traffic jam occurs as drivers hunt for parking spots near the concert.

Which of the following explains why a city fireworks display on the Fourth of July is provided as a public good?

• Fireworks displays usually take place in a public area.

• Fireworks are a scarce resource.

• Nonpayers cannot be prevented from seeing the fireworks.

• Each consumer pays a fee to see the fireworks.

The part of the economy that involves the transactions of the government.

• Private sector

• Free rider

• Public sector

• Externality

Someone who would not choose to pay for a certain good or service,but who would get the benefits of it anyway if it were provided as a public good.

• Market failure

• Externality

• Public good

• Free rider

The part of the economy that involves the transactions of individuals and businesses.

• Public sector

• Externality

• Private sector

• Public good