Market Failures

Why does the government intervene in a market?

A market failure is best described as

• The concept that a decision made by one party can have negative effects on another party

• The idea that market forces of supply and demand always provide the maximum benefit for society

• The idea that market forces of supply and demand do not always provide the maximum benefit for society

• The concept that a decision made by one party can have positive effects on another party

Market failures occur when

• a command economy increases production

• the accumulation of wealth in the free market is shared between a large group of people

• the economy has a strong GDP

• the distribution of goods and services in the free market is not efficient and leads to loss of social wellbeing

When there is a _______ production externality, the free market _________ resources to the production of the good, and too ______ of it is produced relative to the social optimum. This is shown by _______and _______ at the point of production, Qm, *

• negative; misallocate; little; Qm > Qopt; MSC < MSB

• negative; overallocate; much; Qm > Qopt; MSC > MSB

• positive; underallocate; much; Qm > Qopt; MSB > MSC

• positive; misallocate; much; Qm > Qopt; MSC > MSB

The free market outcome is determined by the intersection of _____ and ____, resulting in quantity ____ and price ____. The social optimum outcome is given by the intersection of ____ with ____, which determines quantity _____ and price ____.

• MPB; MSB; Qm; Popt; MPC; MSC; Qopt; Popt

• MSB, MSC; Qm; Pm; MPB; MPC; Qopt; Popt

• MPB; MPC; Qm; Pm; MSB; MSC; Qopt; Popt

• MPC; Popt; Qm; Pm; MSC; MSQ; Oopt, Pm

The use of advertisement to decrease negative externality of consumption affects

• Marginal social cost

• Marginal social benefit

• Marginal private cost

• Marginal private cost

The use of taxes to decrease negative externality of production affects

• Marginal social cost

• Marginal private cost

• Marginal social benefit

• Marginal private benefit

The welfare loss triangle will be pointing left (to the negative quadrant) when the issue is about

• Negative externalities

• Positive externalities

What is a common cause of market failure in the context of public goods?

• A) Overproduction of goods

• B) Non-excludability and non-rivalry

• C) Perfect competition

• D) High consumer demand

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

• A) A company planting trees in a community

• B) A factory polluting a river

• C) A person receiving a flu vaccine

• D) A public park being built