Market Failure Quiz - Part 2

Common access resources have the following features:

• They are excludable and rivalrous in consumption

• They are non-excludable and non-rivalrous in consumption

• They are non-excludable and rivalrous in consumption

• They are excludable and non-rivalrous in consumption

Which of the following is the best way to solve the excessive depletion of fishing stocks:

 

Hint - The best way to prevent over consumption is to make people pay for it through a market system

• An increase in the price of licences required to fish in the bay

• Deregulation (Privatisation) of the fishing industry

• A ban on recreational fishing in the bay

• An excise tax on fish sold at wholesale markets

A negative externality associated with the production of compact discs is:

 

• The music that might keep neighbours awake

• The transport costs associated with getting the CD to the retail outlet

• The carbon emitted from the production plant

• The opportunity cost associated with using the resources to make CD’s

Which of the following is most likely to lead to failure in the market for electricity?

• The entry of additional firms into the industry

• Further government deregulation and the creation of a national electricity grid connecting the states

• Increased access to the internet through the National Broadband Network and the introduction of laws about product disclosure

• The abolition of the carbon tax

Concerning the features of public and private goods, which of the following is most correct?

• Private goods are non-rival in nature.

• Public goods are normally non-excludable.

• Public goods are normally both non-rival and non-excludable.

• Private goods are normally provided through the federal budget.

The market failure associated with asymmetric information may be reduced if the federal government:

• Introduce a tax on carbon pollution.

• subsidises essential pharmaceuticals.

• bans the advertising of junk food.

• provides free Internet access to all households.

The market failure that may result because of asymmetric information is unlikely to be minimised through:

• Stringent penalties on those firms who engage in misleading and deceptive conduct

• Use of independent reviews by consumers

• Removing the requirement for firm’s to have a strict code of conduct

• Legislation which entitles consumers to a refund if they purchase a faulty product

The building of a desalination plant in Victoria may cause market failure because:

• There will be an increase in the price of water

• There will be an increase in the availability of water

• The plant will create environmental damage and increase the use of electricity

• Consumers will not know what type of water they are drinking.

When an insured person behaves in a way that adds to a risk of loss or damage this is best categorised as

• Moral Hazard

• Adverse Selection

• Principal agent problem

• Lemon Law

Which of the following is the best example of a market failure associated with the large size of Australian bank?

• Large banks lead to economies of scale production

• Large banks make big profits

• Large banks create a moral hazard problem as banks can become too big to fail

• Large banks tend to substitute out of labour and capital