Market Failure Quiz

What is the definition of Market Failure?

• When the market system produces goods at the lowest cost

• When the market system leads to an inefficient use of resources

• When the market system produces goods in the right quantities

• When the market system efficiently uses resources

Which of the following is an example of Market Failure?

• Increased competition among businesses

• Overproduction and overconsumption of Demerit Goods

• Efficient distribution of incomes

• Sustainable use of resources

What are some causes of Market Failure?

• Complete information available

• Abundance of competition

• High demand for goods

• Failure to consider External Costs

Which of the following is a consequence of Market Failure?

• Equal distribution of incomes

• Environmental Pollution

• Optimal production of goods

• Efficient resource utilization

What is a common example of Market Failure related to common property resources?

• Reasonably Low Prices

• Overfishing within sustainable limits

• Overproduction of Merit Goods

• Undergrazing of pasture

An airline upgrades its services by providing bigger aircraft. The airline claims it will reduce catering waste and lower carbon (CO2) emissions per passenger journey although fares may rise. What is a private cost and an external benefit of this decision?

• A

• B

• C

• D

Which type of goods would be over-produced if left to market forces?

•   Basic necessities

•   Capital goods

•   Demerit goods

• Public goods

A merit good is one which:

•      has an absence of external benefits

•      has higher private benefits than consumers realise

•    imposes costs on those who are not involved in its production directly

•     is both non-excludable and non-rival

Why does a government provide public goods?

• Public goods are always used by everyone.

• Public goods are not profitable for private firms.

•   Public goods can only be provided by monopolies.

•   Public goods create large external costs.

What is the definition of social cost?

Answer choices

• The cost incurred by the person or firm carrying out the activity

• The benefits enjoyed by the person or firm carrying out the activity

• The negative effects of an activity on other members of society

• The total cost of an activity to society, including both private costs and external costs