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WorksheetsMarket Failure
Total questions: 50
Worksheet time: 8hrs 20mins
Market failure arises whenever firms
make a loss
replace machines with workers
create externalities
reduce expenditure on research and development
Market failure results in a misallocation of resources. In some cases, this can be corrected by the government
restricting the manufacture of goods that generate positive externalities
Providing public goods
subsidising all loss-making firms
placing a tax on merit goods
In which of the following situations is market failure least likely to occur? A situation where;
externalities exist
many producers compete in the market
there is a sole producer in market
there is a very uneven distribution of income and wealth
A situation of market failure is said to exist if;
buyers and sellers pay for the true opportunity costs of their actions
there are no externalities
the government provides merit goods free
third parties in society are affected and not compensated
__________ goods are goods that are considered __________ for consumers but which are_________ by the market. One important reason for overprovision is that the good may have __________ consumption externalities, thus the market ________ resources in its production.
Excise; desirable; underproduced; positive; overallocates
Demerit; desirable; underproduced; positive; underallocates
Normal; needs; undervalued, elastic; frees
Demerit; undesirable; overproduced; negative; overallocates
Which of the following is a characteristic of a merit good?
It could be provided by the free market, but not in sufficient quantities
It is always provided free to consumers
It tends to generate negative externalities, so governments restrict its consumption
Once the good has been supplied to one consumer, there is no additional cost in supplying it to others
Which of the following is NOT a reason for market failure?
Presence of Public Goods
Presence of Positive Externalities
Perfectly competitive markets
Incomplete markets
Will the firm generating externality depicted by the above diagram, overproduce or underproduce the good?
Overproduce
Underproduce
Which best describes a public good?
A good provided by the government
A good purchased by individuals
A good that exists only in a free market
A good that produces no externalites
Businesses can "Collude" or work together to set prices
Oligopoly
Monopoly
Perfect Competition
Monopolistic Competition
Which of the following industries is an example of a monopoly?
utilities/water
department stores
auto industry
commercial airlines
Public utilities are an example.
Perfect Competition
Natural Monopoly
Monopolistic Competition
Oligopoly
In this market, the producer is the least responsive to buyers' needs and wants.
Perfect Competition
Pure Monopoly
Monopolistic Competition
Oligopoly
Negative externalities can be best described as
When the consumption/production of a good or service has a negative impact on a third party
When the consumption/production of a good or service has any impact on a third party
When the consumption/production of a good or service has a positive impact on a third party
When the consumption/production of a good or service depletes the access for a third party
Companies that possess market power are referred to as ____________.
competitive firms
identical firms
price takers
price makers
One example of monopoly in Australia is Australia post. Its main barrier to entry is?
Governmental authority
Economies of scale
Brand loyalty
Geographical barrier
Which of the followings is not a barriers to entry?
Economies of scale
Legal patent
Brand loyalty
Identical products produced
When actions of consumers or producers give rise to side effects who are not part of these actions and not considered
Market Failure
Externality
Marginal Private Costs
Marginal Social Costs
Costs to society of producing one more unit of a good
Market Failure
Externality
Marginal Private Costs
Marginal Social Costs
The external costs to third party that occur when a product is produced.
Marginal Private Benefits
Marginal Social Benefits
Negative Externality of Production
Tradable Permits/Cap and Trade Schemes
The external benefits to a third party that occur when a product is produced
Negative Externality of Consumption
Demerit Goods
Positive Externality of Production
Positive Externality of Consumption
The external benefits to a third party that occur when a product is produced
Negative Externality of Consumption
Demerit Goods
Positive Externality of Production
Positive Externality of Consumption
A shared good or service for which it would be inefficient or impractical to make consumers pay individually and to exclude nonpayers. Examples: Roads, mail, military.
Common access resources
Public goods
Private goods
Goods with negative externalities
Private benefits plus external benefits is
External benefit
Social benefits
Private benefits
"Benefits cannot be confined to those who have paid for it". This means...
Non-excludability
Non-rivalry in consumption
"Consumption by one person does not reduce the availability of a good to others". This means...
Non-excludability
Non-rivalry in consumption
"Consumption by one person does not reduce the availability of a good to others". This means...
Non-excludability
Non-rivalry in consumption
Market failures occur when
the accumulation of wealth in the free market is shared between a large group of people
a command economy increases production
the economy has a strong GDP and low interest rates
the production of a good or service causes additional positive or negative side-effects to a third party not involved in the economic activity
Negative externalities can be best described as
When the consumption/production of a good or service has a negative impact on a third party
When the consumption/production of a good or service has any impact on a third party
When the consumption/production of a good or service has a positive impact on a third party
When the consumption/production of a good or service depletes the access for a third party
Negative externalities can be best described as
When the consumption/production of a good or service has a negative impact on a third party
When the consumption/production of a good or service has any impact on a third party
When the consumption/production of a good or service has a positive impact on a third party
When the consumption/production of a good or service depletes the access for a third party
Which of the categories below can junk food be classified as?
Merit Good
Demerit Good
Public Good
Private Good
Increase in poverty is a cause of market failure
True
False
Retrenchment is a consequence of market failure
True
False
Positive externality causes market failure.
True
False
A factory warming the river for bathers is a
Positve Externality
Negative Externality
Which is not a cause of market failure
Inadequate provision of public goods
Inadequate provision of merit goods
Monopoly
Positive exrternality
Perfect competition
Economic recession,decline in societal welfare are
Causes of market failure
Consequences of market failure
Allocative effciency takes place when
P>MC
P=MC
P<MC
__________________ of merit goods and __________ of negative externalities causes market failure
under production,under production
missing markets, over production
under production, over production
A person who enjoys the benefit of a good but avoids paying for it is called a
Cheater
monopolist
free rider
non excludable person
