Market Failure

Society achieves allocative efficiency when

• marginal social benefits > marginal social cost

• marginal social benefits < marginal social cost

• marginal social benefits = marginal social cost

• marginal private benefits = marginal private cost

The price mechanism may allocate resources efficiently in the case of

• public goods

• private goods

• non-excludable goods

• non-rivalrous goods

Which of the following is not a cause of market failure?

• the presence of common pool resources such as forests and oceans

• the existence of public goods

• the presence of externalities

• the presence of maximum social surplus

An externality is present when

• there is an efficient allocation of resources

• the economy reaches an equilibrium when MSB = MSC

• activities of producers and consumers prevent the economy from reaching an equilibrium

• activities of producers and consumers affect the well being of third parties whose interests are not taken into account

A negative externality arising from the production of good Z leads to

• an overallocation of resources to the production and consumption of good Z

• an underallocation of resources to the production and consumption of good Z

• higher costs of production for good Z

• lower demand for good Z

Negative production externalities due to the use of fossil fuels arise because

• the private costs of production are greater than the social costs

• environmental regulations are strongly enforced

• firms are not aware of environmental regulations

• firms ignore the costs they impose on bystanders

Market-based policies to reduce the external costs arising from the use of fossil fuels do not include

• tradable permits

• carbon taxes

• indirect taxes

• collective self - governance

The use of cars usually leads to ________ because ________

• negative production externalities / MSC < MPC

• negative consumption externalities / MSC > MPC

• positive consumption externalities / MSB > MPB

• negative consumption externalities / MPB > MSB

Demerit goods are often _____________________ due to _____________________.

• non-excludable / their high prices

• underprovided by the market / positive consumption externalities

• overprovided by the market / negative consumption externalities

• underprovided by the market / negative production externalities

Negative consumption externalities are unlikely to be dealt with through the use of

• indirect taxes

• legislation

• advertising

• tradable permits