Ch 11: Market Failure- Externalities and Common Pool Resources

A market failure occurs when

• free market resources are distributed efficiently

• any time government intervention is required

• any time when allocation of resources is inefficient

• when the market doesn't provide a certain good or service

Market efficiency is achieved when

• Marginal private Benefits= Marginal social costs

• Marginal private Benefits> Marginal social costs

• Marginal social Benefits= Marginal social costs

• Marginal social benefits >Marginal social costs

The Pareto efficiency occurs when

• no party can be made better off without another being made worse off

• when government intervenes in the market

• when MSB> MPC

• where PS and CS are maximized

Externalities occur when a _____ is affected

• Consumer

• Producer

• Government

• third party

Which is NOT a market failure?

• access to common resources

• elimination of barriers to trade (like removing tariffs)

• lack of public goods, ie streetlights

• existence of positive externalities

Cultivation of palm oil leads to loss of rainforests and increased CO2 levels. What type of market failure is this?

• abuse of monopoly

• lack of public goods and common access

• negative consumption externality

• negative production externality

Marginal Social Cost of producing crude oil > marginal private cost indicates a

• Negative consumption externality

• Negative production externality

• positive consumption externality

• positive production externality

Which is NOT a valid solution for minimizing negative PRODUCTION externalities?

• Negative advertising

• carbon taxes

• Regulation

• tradeable permits

In the case of negative production externalities, taxes shift the MPC curve closer to the ____ curve

• Long run average cost

• MPB

• MSB

• MSC

Which is NOT a valid advantage of using taxes to minimize negative PRODUCTION externalities?

• incentivizes innovation

• internalizes the externality

• reduced quantity traded

• reduces welfare loss