2024 Mkt Failure Positive Ext & Policies

What is a source of market failure in the case of goods with externalities?

• Presence of external costs or benefits to society

• Lack of government intervention

• Consumers maximizing welfare

• Perfect competition in the market

Answer explanation

Presence of external costs or benefits to society is a source of market failure in the case of goods with externalities.

What are positive externalities in consumption?

• Additional costs incurred by consumers

• Benefits accrued to society not considered by consumers

• Underproduction of goods

• Decrease in social benefit compared to private benefit

Answer explanation

Positive externalities in consumption refer to benefits accrued to society that are not considered by consumers, leading to a positive impact beyond individual consumption.

What is the socially optimal level of output in the case of positive externalities?

• Where there is underproduction

• Where marginal private benefit (MPB) is maximized

• Where marginal social cost (MSC) is minimized

• Where marginal social benefit (MSB) equals marginal social cost (MSC)

Answer explanation

Where marginal social benefit (MSB) equals marginal social cost (MSC)

What policy intervention can address market failure due to positive externalities?

• Monopoly control

• Deregulation

• Subsidies

• Taxation

Answer explanation

Subsidies are a policy intervention that can address market failure due to positive externalities by providing financial support to encourage the production or consumption of goods or services with positive externalities.

What is the aim of providing subsidies in the case of positive externalities?

• To encourage production/consumption up to the socially optimal level

• To increase government revenue

• To decrease production levels

• To reduce consumer choice

Answer explanation

To encourage production/consumption up to the socially optimal level

What is an example of direct provision of a good with positive externalities?

• Subsidizing education costs

• Imposing fines for non-compliance

• Joint provision by public and private sectors

• Government taking over production decisions

Answer explanation

The correct choice is the government taking over production decisions because it directly provides goods with positive externalities by ensuring their production and distribution.

What is the purpose of legislation/rules and regulation in addressing positive externalities?

• To decrease consumption of goods/services

• To increase penalties for consumers

• To limit government intervention

• To encourage consumption to socially optimal levels

Answer explanation

The purpose of legislation/rules and regulation in addressing positive externalities is to encourage consumption to socially optimal levels.

What is the main benefit of a medical saving account scheme in the healthcare market?

• Increasing government spending

• Decreasing consumer choice

• Encouraging consumption of healthcare services

• Reducing access to healthcare

Answer explanation

The main benefit of a medical saving account scheme is to encourage consumption of healthcare services, providing individuals with financial incentives to seek necessary medical care.

What may render legislation ineffective in addressing under-consumption in the healthcare market?

• Opportunity cost considerations

• Harsh penalties for non-compliance

• Cognitive bias towards loss aversion

• Loopholes in regulations

Answer explanation

Loopholes in regulations may render legislation ineffective in addressing under-consumption in the healthcare market by allowing for ways to bypass or circumvent the intended regulations.

How do subsidies help in correcting market failure due to positive externalities?

• By reducing the cost of production for firms

• By increasing consumer prices

• By limiting consumer choices

• By encouraging overproduction of goods

Answer explanation

Subsidies help correct market failure due to positive externalities by reducing the cost of production for firms, incentivizing them to produce more of the beneficial goods or services, hence shifting MPC to match MSC