ECON DC QUIZ

Market failure is said to occur whenever

• competitive markets do not allocate resources in the most economically desirable way.

• prices rise.

• some consumers who want a good do not obtain it because the price is higher than they are willing to pay.

• government intervenes in the functioning of competitive markets.

Market failures

• are only a concern when they result in prices that are too high.

• apply exclusively to situations where markets do not produce any of an economically desirable good.

• result in overproduction or underproduction of a good.

• result from government interference in markets.

In a free-market economy, a product which entails a positive externality will be

• overproduced.

• underproduced.

• produced at the optimal level.

• provided solely by the government.

In a situation where an externality occurs, the "third party" refers to those who

• buy the product from others.

• produce the product for others.

• trade the product with others outside the nation or community.

• are not directly involved in the transaction or activity.

External benefits in consumption refer to benefits accruing to

• those who are selling the product to the consumers.

• those who bought and consumed the product.

• those other than the ones who consumed the product.

• those who are consuming the product abroad.

Where there are spillover (or external) benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except

• subsiding the buyers of the product.

• taxing the sellers of the product

• subsidizing the sellers of the product.

• providing the product itself.

If Congress decreases the amount of government insurance on bank deposits, then this action would

• create a moral hazard problem in banking.

• reduce a moral hazard problem in banking.

• create an adverse selection problem in banking.

• reduce an adverse selection problem in banking.

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

• new cars declining in quality because of competition from used cars.

• a declining quality of used cars for sale in the market.

• a rising quality of used cars for sale in the market.

• used-car buyers willing to pay higher prices in the market.

A producer's minimum acceptable price for a particular unit of a good

• is the same for all units of the good.

• will, for most units produced, equal the maximum that consumers are willing to pay for the good.

• equals the marginal cost of producing that particular unit.

• must cover the wages, rent, and interest payments necessary to produce the good but need not include profit.

Refer to the diagram. If actual production and consumption occur at Q3,

• efficiency is achieved.

• an efficiency loss (or deadweight loss) of e + f occurs.

• an efficiency loss (or deadweight loss) of a + b + c + d occurs.

• an efficiency loss (or deadweight loss) of a + c occurs.