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WorksheetsGovernment Intervention and externalities
Total questions: 115
Worksheet time: 2hrs 43mins
What is an externality in the context of market failure?
A product that can be excluded from non-payers
A cost or benefit incurred by a third party who did not agree to it
The exclusive right to produce a particular good
A situation where market supply and demand balance perfectly
What is an externality in the context of market failure?
A product that can be excluded from non-payers
A cost or benefit incurred by a third party who did not agree to it
The exclusive right to produce a particular good
A situation where market supply and demand balance perfectly
Which of the following is an example of a negative externality?
A public park
A free online educational course
A factory polluting a river that is used by the community
A patented invention
What characterises a Public good?
It is non-excludable and non-rivalrous
It is excludable and rivalrous
It is only available to paying customers
It can be easily depleted
Which of the following is an example of a public good?
A private swimming pool
A toll road
National defence
A restaurant meal
What does market power refer to?
The ability of consumers to dictate prices
The power of the government to regulate markets
The ability of a firm to influence or control the price and output of a product
The collective power of buyers and sellers to reach equilibrium
Monopolies are an example of:
Perfect competition
Market power
Public goods
Externalities
What is information asymmetry?
When all market participants have the same information
When one party in a transaction has more or better information than the other
The equal distribution of income among participants
The symmetry in product information available to all consumers
Which of the following is a solution to reduce negative externalities?
Decreasing taxes on the affected goods
Increasing public awareness
Imposing a tax on the producer of the externality
Encouraging monopolies
Government intervention in the market is usually required when:
Markets are perfectly competitive
There is a presence of market failures
All products are private goods
Information symmetry exists
Regulation can be defined as:
The absence of government in the marketplace
The actions taken by a government to influence or control market activities
The process of deregulating markets
The market self-regulating without any external influence
Which of the following best describes a scenario of market failure due to information asymmetry?
A buyer knowing more about the quality of a product than the seller
A seller knowing less about the market demand than the buyer
A seller knowing more about the product quality than the buyer
Both buyer and seller having equal information about the product
The free-rider problem is most associated with:
Private goods
Public goods
Negative externalities
Information asymmetry
Which of the following is a characteristic of a monopolistic market?
Many sellers and many buyers
A single seller and many buyers
Many sellers and a single buyer
Perfect information symmetry
Which of the following is not a form of government intervention?
Subsidies
Taxes
Monopolies
Regulations
Which of the following is a regulatory measure to control monopolistic power?
Encouraging the formation of cartels
Price capping
Reducing taxes on monopoly profits
Decreasing barriers to entry
“Once a public good is produced, anyone can enjoy it, even those who did not pay for its consumption.” This statement describes which economic concept?
An absence of private property rights
Free-rider problem
Government Failure
Public goods are non-rival and non- ?
(a)
Which of the following is not a public good?
Street Lights
The Army
Buses
Flood Control Systems
Which of the following defines a Quasi-Public Good?
Semi Non Rival & Semi Non Excludable
Non Rival & Non Excludable
Non Excludable & Semi Non Rival
Semi Non Excludable & Non Rival
Is public transport a public good?
Yes
No
Public goods cause market failure because of ?
(a)
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
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
Selling your old computer on Gumtree could be an example of
Public goods
Asymmetric information
Common access resources
Negative externalities
A large number of cars polluting the air could be an example of
Consumption of common access resources
Asymmetric information
Negative externalities
Public goods
Which is not an example of a public good?
Street lights
Local GP superclinic
Bottled water
Defence force
This image is an example of
Common access resources
Public goods
Asymmetric information
Negative externalities
Examples of market failure occur because
Business and consumers value personal benefits over social costs
Businesses value personal benefits over social costs
Consumers value social benefits over personal costs
None of the above
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
Which of the following statements is true about externalities?
When externalities exist, resources are allocated efficiently
When positive externalities exist, efficiency is improved by taxing the product
From society's point of view, the output of goods for which a positive externality exists is too low
The price system overproduces goods with positive externalities
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
When social costs are greater than private costs, there is a;
positive externality
negative externality
less than socially optimal output
socially optimal output
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
MPC; Popt; Qm; Pm; MSC; MSQ; Oopt, Pm
MPB; MPC; Qm; Pm; MSB; MSC; Qopt; Popt
MSB, MSC; Qm; Pm; MPB; MPC; Qopt; Popt
In a market for a product with positive externalities;
all benefits are not internalized
there is too much production
profits are too low
profits are too high
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
positive; underallocate; much; Qm > Qopt; MSB > MSC
negative; overallocate; much; Qm > Qopt; MSC > MSB
positive; misallocate; much; Qm > Qopt; MSC > MSB
__________ 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
Public goods, such as defence, are not supplied by the price system because;
the capital cost is too high
the benefits would - ceteris paribus - not be restricted to buyers but would be available to non-buyers as well
public goods are necessities and therefore cannot be left to the price system
monopolies would make supernormal profits
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 does not apply to merit goods and services?
They provide private and social benefits
They are limited in supply and require a system of allocation
They could be paid for by the consumer if a market system was allowed to operate
They have the characteristic of non-excludability
Governments use cost-benefits analysis to;
measure the net social benefit of a project
make consumers pay for the net social benefit they receive
minimize social costs
make producers pay for the social costs of a project
A tin-mining company is found guilty of polluting a river. Which one of the following government measures would an economist describe as an appropriate market-based solution?
Imposition of regulations and direct control on the company
A reduction of private property rights over the river
Increase tax on the tin produced
Nationalization of the tin-mining company
The ups and downs of the economy, which the government must sometimes step in to stabilize due is known as the
Regulatory cycle
Business cycle
Fiscal Policy
Monetary Policy
Which is not an example of a publicly owned industry intended to provide goods and services more efficiently to the public?
Postal service
Public transportation
Airline industry
Utilities such as gas, water, electric
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 distribution of goods and services in the free market is not efficient and leads to loss of social wellbeing
Which of the following is NOT a cause of market failure
The provision of public goods
Perfect competition
The provision of merit goods
Externalities
Monopoly
This means that consumption by one person does not reduce the consumption by another persons.
Non-Rivalrous
External cost
Non-excludable
Freeriders
This is the fact that consumption of a public good cannot be confined to those who have paid for it.
Non-Rivalrous
External cost
Non-excludable
Freeriders
Efficient allocation of resource is where:
P = VC
P < TC
P = MC
P < MC
Which of the following is an example of a public good?
A lighthouse
The public transport (bus or train)
Water to homes
A coca cola
A free good has:
An opportunity cost
No opportunity cost
Excludability
Has a price
We may minimize market failure related to a public good by:
Restricting access to only those who pay
Excluding those who want to freeride
Providing the good using taxation revenue
Depending on the private sector to supply it
TWO ANSWERS ARE CORRECT: Market failure occurs:
The free market fails to open on time
Free markets fail efficiently allocate resources
Price mechanism is NOT low enough for all consumers to afford the good
Price mechanism fails to account for all costs and benefits associated with consumption of a product
Products where social benefits to the community outweighs the private benefits to the consumer:
Merit goods
Demerit goods
Public goods
Economic goods
Products that the government feels that people will under-consume and suppliers over supply:
Merit goods
Demerit goods
Public goods
Economic goods
Products people underestimate the benefits of consuming and producing
Merit goods
Demerit goods
Public goods
Economic goods
Tend to have positive externalities
Merit goods
Demerit goods
Private goods
Economic goods
More harmful than customers realize:
Merit goods
Demerit goods
Private goods
Economic goods
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
Public goods, such as defence, are not supplied by the price system because;
the capital cost is too high
the benefits would - ceteris paribus - not be restricted to buyers but would be available to non-buyers as well
public goods are necessities and therefore cannot be left to the price system
monopolies would make supernormal profits
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
Which of the following is NOT a cause of market failure
The provision of public goods
Perfect competition
The provision of merit goods
Externalities
Monopoly
This means that consumption by one person does not reduce the consumption by another persons.
Non-Rivalrous
External cost
Non-excludable
Freeriders
This is the fact that consumption of a public good cannot be confined to those who have paid for it.
Non-Rivalrous
External cost
Non-excludable
Freeriders
Efficient allocation of resource is where:
P = VC
P < TC
P = MC
P < MC
Which of the following is an example of a public good?
A lighthouse
The public transport (bus or train)
Water to homes
A coca cola
A free good has:
An opportunity cost
No opportunity cost
Excludability
Has a price
We may minimize market failure related to a public good by:
Restricting access to only those who pay
Excluding those who want to freeride
Providing the good using taxation revenue
Depending on the private sector to supply it
TWO ANSWERS ARE CORRECT: Market failure occurs:
The free market fails to open on time
Free markets fail efficiently allocate resources
Price mechanism is NOT low enough for all consumers to afford the good
Price mechanism fails to account for all costs and benefits associated with consumption of a product
Products where social benefits to the community outweighs the private benefits to the consumer:
Merit goods
Demerit goods
Public goods
Economic goods
Products that the government feels that people will under-consume and suppliers over supply:
Merit goods
Demerit goods
Public goods
Economic goods
Products people underestimate the benefits of consuming and producing
Merit goods
Demerit goods
Public goods
Economic goods
Tend to have positive externalities
Merit goods
Demerit goods
Private goods
Economic goods
More harmful than customers realize:
Merit goods
Demerit goods
Private goods
Economic goods
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
Public goods, such as defence, are not supplied by the price system because;
the capital cost is too high
the benefits would - ceteris paribus - not be restricted to buyers but would be available to non-buyers as well
public goods are necessities and therefore cannot be left to the price system
monopolies would make supernormal profits
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
Which of the following is NOT a cause of market failure
The provision of public goods
Perfect competition
The provision of merit goods
Externalities
Monopoly
This means that consumption by one person does not reduce the consumption by another persons.
Non-Rivalrous
External cost
Non-excludable
Freeriders
This is the fact that consumption of a public good cannot be confined to those who have paid for it.
Non-Rivalrous
External cost
Non-excludable
Freeriders
Efficient allocation of resource is where:
P = VC
P < TC
P = MC
P < MC
Which of the following is an example of a public good?
A lighthouse
The public transport (bus or train)
Water to homes
A coca cola
A free good has:
An opportunity cost
No opportunity cost
Excludability
Has a price
We may minimize market failure related to a public good by:
Restricting access to only those who pay
Excluding those who want to freeride
Providing the good using taxation revenue
Depending on the private sector to supply it
TWO ANSWERS ARE CORRECT: Market failure occurs:
The free market fails to open on time
Free markets fail efficiently allocate resources
Price mechanism is NOT low enough for all consumers to afford the good
Price mechanism fails to account for all costs and benefits associated with consumption of a product
Products where social benefits to the community outweighs the private benefits to the consumer:
Merit goods
Demerit goods
Public goods
Economic goods
Products that the government feels that people will under-consume and suppliers over supply:
Merit goods
Demerit goods
Public goods
Economic goods
Products people underestimate the benefits of consuming and producing
Merit goods
Demerit goods
Public goods
Economic goods
Tend to have positive externalities
Merit goods
Demerit goods
Private goods
Economic goods
More harmful than customers realize:
Merit goods
Demerit goods
Private goods
Economic goods
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
Public goods, such as defence, are not supplied by the price system because;
the capital cost is too high
the benefits would - ceteris paribus - not be restricted to buyers but would be available to non-buyers as well
public goods are necessities and therefore cannot be left to the price system
monopolies would make supernormal profits
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
