Unit 18: Moral Hazard, Speculation and Market Bubbles

Which one of these is NOT an AUTOMATIC characteristic of a 'Public Good'?

• non-rivalry

• non-excludability

• non-rejectability

• free-rider

Which two of these are NOT characteristics of a 'Private Good'?

• rivalry

• non-rivalry

• excludability

• non-excludability

Someone who has access to a public good but does not pay for it is a...

• Tax-payer

• a global citizen

• free-rider

• a winner in life

Speculation is when....

• Investors buy a good in the hope that the price will increase dramatically.

• a clear moral hazard happens

• market bubbles are burst

• mortgage companies sell sub-prime mortgages.

A moral hazard is when...

• goods are so overpriced that the financial cost does not reflect their value.

• an economic bubble bursts.

• banks are too big to fail.

• an agent takes a risky decision that can impact negatively on 3rd parties but not on them.

Market bubbles are...

• a result of excessive speculation.

• what entertainers use a kids' parties.

• sub-prime mortgages.

• when banks are bailed out by the tax-payer.

When the central bank increases interest rates...

• people get richer.

• the cost of repaying a mortgage increases.

• it creates partial market failure.

• it creates complete market failure.

Which one of these does NOT apply to 'too big to fail'?

• the government organises a 'bail-out'.

• the government organises a 'bail-in'.

• The government allows business and agents who have behaved irresponsibly to fail.

• Businesses and agents acted irresponsibly and then require government support.

Social optimum position is when...

• social benefit is greater than social cost.

• social cost = social benefit exactly.

• the cost of production = the social benefit

• private cost is = to private benefit

Welfare loss, or deadweight loss is the result of...

• the same as equilibrium.

• negative production externalities.

• market failure.

• the social optimum.