Crash Course: Market Failures

What is the free rider problem?

• People who pay more for services than they receive.

• People who pay taxes but do not receive benefits.

• People who benefit from resources without paying for them.

• People who do not use public goods.

Which of the following is NOT a characteristic of public goods?

• Shared consumption

• Excludability

• Non-rivalry

• Non-exclusion

What does the Tragedy of the Commons explain?

• Why government intervention is unnecessary.

• Why private goods are more efficient.

• Why public goods are underproduced.

• Why common resources are often overused and depleted.

What is a negative externality?

• A cost that affects a party who did not choose to incur that cost.

• A benefit that affects a party who did not choose to receive that benefit.

• A cost that is internal to the producer.

• A benefit that is internal to the consumer.

Which of the following is an example of a positive externality?

• Traffic congestion.

• Air pollution from factories.

• Noise from a construction site.

• Education leading to a more informed society.

What is the purpose of regulatory policies?

• To increase market competition.

• To reduce government intervention.

• To establish rules by government decree.

• To eliminate taxes.

How do market-based policies address externalities?

• By banning harmful activities.

• By increasing public goods production.

• By manipulating markets, prices, and incentives.

• By reducing government spending.

What is the advantage of market-based approaches over regulatory approaches?

• They require less government intervention.

• They completely eliminate externalities.

• They generate tax revenue for the government.

• They are easier to enforce.

What is 'cap and trade'?

• A system where companies are subsidized for reducing pollution.

• A system where pollution is completely banned.

• A system where pollution permits are issued and can be traded.

• A system where companies are taxed for pollution.

Why is it difficult to address global issues like climate change?

• Because individual countries cannot prevent others from polluting.

• Because global cooperation is not required.

• Because there is no incentive to reduce pollution.

• Because pollution is not a significant problem.