Market Failure and Economic Concepts Quiz

What is an example of a market failure?

• Price Mechanism

• Consumer Sovereignty

• Perfect Competition

• Externalities

What does 'laissez faire' mean in the context of free market economists?

• Regulate the market

• Leave it alone

• Subsidize the market

• Government intervention

Which of the following is NOT a condition for allocative efficiency in a free market?

• Perfect competition

• Perfect mobility of resources

• Perfect information

• Government intervention

What is a characteristic of a public good?

• Non-rival

• Excludable

• Depletable

• Rival

What is the term for goods and services that are under-consumed and overpriced?

• Public goods

• De-merit goods

• Private goods

• Merit goods

What is the socially desirable equilibrium in private markets?

• SMC = SMB

• SMB = SMC

• PMC = PMB

• MC = MR

What does consumer surplus represent?

• The total revenue of producers

• The difference between what consumers are willing to pay and what they actually pay

• The difference between what producers are willing to supply and the price they receive

• The total cost of production

What is a negative externality of production?

• A subsidy to producers

• A tax on consumers

• A cost to third parties

• A benefit to third parties

What is the purpose of a pollution tax?

• To increase production

• To correct an inefficient market outcome

• To subsidize producers

• To reduce consumer prices

What is a limitation of a pollution tax?

• It is easy to measure spillover costs

• It creates no additional costs

• It is difficult to measure an accurate dollar value of the spillover cost

• It always benefits society