Yr 12 The Causes of Market Failure

What is an externality?

• A benefit or cost that affects a third party (someone not involved in the activity)

• A type of good that is both non-excludable and non-rivalrous.

• A situation where one party has more information than the other.

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

• The planting of trees, that help to improve the environment.

• A factory emitting pollution into the air that creates clean-up costs for local buildings.

• A student receiving a scholarship to go to university.

How can governments try to reduce the negative externalities associated with producing energy?

• By providing subsidies to producers.

• By imposing taxes or regulations on on the energy producers

• By allowing the market to self-regulate.

What characteristics defines a public good?

• It is excludable and rivalrous.

• It is non-excludable but it is rivalrous.

• It is non-excludable and non-rivalrous.

Which of the following is an example of a public good?

• A light-house.

• A toll road.

• A subscription-based streaming service.

What is information asymmetry?

• A situation where all parties have equal information.

• A situation where information is freely available to everyone.

• A situation where one party has more or better information than the other party.

Which of the following is an example of information asymmetry?

• A doctor knowing more about a patient's health than the patient

• .A buyer and seller both knowing the market price of a product.

• A company publishing its financial statements.

Which of the following is a common method to reduce information asymmetry in markets?

• Increasing taxes on goods and services.

• Providing more public goods.

• Providing information free and in an accessible format.

What is a merit good?

• A good that has negative externalities and is considered to be bad for society.

• When a good is non-excludable and non-rivalrous.

• A good or service that has positive externalities and is considered to be good for the consumer and society.

Which of the following can be used to increase the consumption of a merit good such as education or health care? Select 2 answers.

• State provision of the good or service and subsidies to providers.

• Provision of information & media campaigns to let people know about the benefits of consuming the good.

• Putting in place a minimum price for the good or service.