WorksheetsCh. 13 and 14: Market Economy and Market Failure
Total questions: 20
Worksheet time: 15mins
Provide one advantage of a market economy.
Consumers are sovereign
There is no poverty.
Firms have a lot of market power.
All people are employed.
What encourages firms to produce what consumers demand?
The chance to earn a high profit
The chance to experience high unit costs of production
The desire to attract new firms into the industry
The desire to keep revenue as low as possible
In this diagram, how is allocative efficiency experienced?
Price: fall
Demand: fall
Supply: rise
Price: fall
Demand: rise
Supply: fall
Price: rise
Demand: fall
Supply: rise
Price: rise
Demand: rise
Supply: fall
In a market system, what encourages firms to keep their costs low?
Competition
Government regulations
Subsidies
Taxation
Which movement in the diagram shows an increase in productive efficiency?
A to B
B to C
C to D
A to D
What is the "private sector"? Select all that apply.
composed of individual firms
composed of government firms
providing goods and services for everyone is the main objective
earning a profit is the main objective
What is the "public sector"? Select all that applies
composed of individual firms
providing goods and services for everyone is the main objective
earning a profit is the main objective
composed of government firms
How are consumers sovereign in a market economy? Select all that apply.
they keep the price low by buying the most affordable products
they produce products that are needed by everyone
they determine what is
produced
they can increase a product's price by buying more of it
What is the role of profit in a market economy? Select all that apply.
it's an incentive that firms get when they listen to customers
it drives efficiency among firms
Consumers' demands are met
it gives firms an opportunity to expand their bsuiness
What argument can be used to say that prices in a market economy may be low?
because there may be a high level of
competition
because customers are always right
because producers will use quality materials
because customers like second-hand products
Which of the following cases is market failure experienced?
Firms producing above the lowest possible cost
Consumers determining what is produced
Price falling as a result of a decrease in demand
Price rising as a result of an increase in costs of production
Which of the following defines a merit good?
has an absence of external benefits
has higher private benefits than consumers realise
imposes costs on those who are not involved in its production directly
is both non-excludable and non-rival
Which type of goods would be over-produced if left to market forces?
Capital goods
Basic necessities
Merit goods
Demerit goods
What is a cause of market failure?
Differences in pay between skilled and unskilled workers
Competition between firms
Resources being both geographically and occupationally mobile
Consumers lacking information about where the lowest prices can be found
What is an external cost? Choose all that apply.
a harmful effect on third parties
a harmful effect on people not directly involved in
consuming and producing a product
workers in a chemical factory suffer from respiratory problems
people living near a chemical factory suffer from contaminated water source
What does not define a merit good?
one that the government considers is more beneficial to consumers than they
realise
underconsumed and underproduced if left to market forces
generates external benefits
the private benefits exceed the social benefits
What is a demerit good? Choose all that apply.
it causes external costs
government thinks is more harmful to consumers than
they appreciate
is underconsumed and so underproduced if left to
market forces
the social costs exceed the private costs
Why are the social benefits of education exceed its private benefits?
because education has external benefits
because what else can we say, education is education
because if a private benefit exceeds another one, then there will be 2 of them
because a private benefit is directed to the one engaged in education
What are the external benefits of education? Select all that apply.
and better quality output due to higher labour productivity
increased output
More and better
products can be consumed
increased tax revenue arising from higher
incomes
What are arguments that can be used to support the claim that the continuous tree cutting in the Amazon rainforest should stop? Select all that apply.
External costs exceed external and private benefits
Damage to wildlife habitats
Global warming
Social costs exceed social benefits
