WorksheetsMarket failure
Total questions: 70
Worksheet time: 2hrs 47mins
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
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
Driving a car on crowded highway produces
a negative externality.
a positive externality.
Apartment dwellers who buy fire alarms or fire extinguishers generate a
negative externality.
positive externality.
A tax equal to the external cost on firms that emit pollutants would
not reduce pollution levels at all.
provide firms with the incentive to increase the level of activity creating the pollution.
provide firms with the incentive to decrease the level of activity creating the pollution.
provide firms with little incentive to search for less environmentally damaging production methods.
What is the free rider problem?
scarcity even when you pay for a good
Reaping all the benefits without contributing
Common goods that don't have a price
none of the above
What is one reason that local law enforcement is considered a public good?
Everyone in the community benefits from it.
Nobody in the community has to pay for it.
Private firms make a profit from producing it.
Individual citizens pay directly for it.
Which of the following is an example of a positive externality resulting from an outdoor band concert?
An elderly woman in her apartment hears a song that she liked as a child.
A pair of endangered birds leave their nest in a nearby tree when the concert starts.
A pizza parlor closes early, because all of its customers are at the concert.
A traffic jam occurs as drivers hunt for parking spots near the concert.
Which of the following explains why a city fireworks display on the Fourth of July is provided as a public good?
Fireworks displays usually take place in a public area.
Fireworks are a scarce resource.
Nonpayers cannot be prevented from seeing the fireworks.
Each consumer pays a fee to see the fireworks.
The part of the economy that involves the transactions of the government.
Private sector
Free rider
Public sector
Externality
Someone who would not choose to pay for a certain good or service,but who would get the benefits of it anyway if it were provided as a public good.
Market failure
Externality
Public good
Free rider
The part of the economy that involves the transactions of individuals and businesses.
Public sector
Externality
Private sector
Public good
Is a situation in which the market, on its own, does not distribute resources efficiently.
Public good
Private sector
Externality
Market Failure
An Economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.
Public good
Free rider
Externalities
Private sector
An example of a public good is...
Firefighters
police officers
parks
all answers are correct
What does non-rival mean?
More than one person can use it
Only one person can use it
There are direct competitors for a product
None of the above
Excludable means:
Someone can deny access to a good
Everyone is able to access a good
Multiple people can use something at the same time
Only one person can use something at one time
Public goods are
rival and excludable
non-rival and non-excludable
rival and non-excludable
non-rival and excludable
In which case is market failure occurring?
Consumers determining what is produced
Firms producing above the lowest possible cost
Price falling as a result of a decrease in demand
Price rising as a result of an increase in costs of production
A merit good is one which:
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?
Basic necessities
Capital goods
Demerit goods
Public goods
What is a cause of market failure?
Competition between firms
Consumers lacking information about where the lowest prices can be found
Differences in pay between skilled and unskilled workers
Resources being both geographically and occupationally mobile
Which is not an example of market failure?
air pollution
a supermarket charging high prices because of its monopoly power
car parks in a town centre
congestion caused by the number of cars on the road
Which is an example of a public good?
healthcare
museums
public fireworks display
public playgrounds
A government decides to build another airport terminal at an existing airport. This will increase air
and road traffic around the airport but will also increase trade and tourism and create business and
employment opportunities. Which economic concepts are mentioned in the above statements?
conservation of resources, economic growth, external benefits
external costs, external benefits, opportunity cost
external costs, opportunity cost, conservation of resources
opportunity cost, occupational mobility of labour, geographical mobility
Which is not a characteristic of a merit good?
over-provided
under-consumed
provides social benefits
under-provided
Which does not provide external benefits to society?
local college that provides education and training to increase people’s skills and qualifications
a new history museum
a public park
new public housing funded by the government
A Cheeseburger is a :
Common resource ,because it is rival in
consumption and non excludable
public good , because it is rival in consumption but not excludable
Public good, because it is excludable and rival in consumption
Private good, because it is excludable and rival in consumption
A market failure is a situation where:
markets fail to allocate resources efficiently
markets enable buyers to gain utility
markets fail to enable sellers to make profits
markets encourage people to take risks
Someone who derives benefits from something not paid for is Known as
Consumer
Free Rider
Outside party
Product Producer
Negative externality is When ___ spill over to an outside party
Expenses
Costs
Benefits
Loses
Positive externality is When ____ spill over to an outside party
Expenses
Costs
Benefits
Loses
An educated population is an example of a(n) ______.
Positive externality
Negative externality
Government subsidy
Adverse selection
If firms had to pay for the externalities they cause, production costs would ______.
Become indeterminate
Remain unaffected
Increase
Decrease
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
Selling your old computer on Gumtree could be an example of
Public goods
Asymmetric information
Common access resources
Negative externalities
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
Businesses can "Collude" or work together to set prices
Oligopoly
Monopoly
Perfect Competition
Monopolistic Competition
supermarkets
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
When firms agree to charge the same or similar prices for a product, this is known as
price-fixing
independent behavior
natural monopoly
laissez-faire
If a firm can change market prices by altering its output, then it
Has market power.
Faces a flat demand curve.
Is a price taker.
Engages in marginal cost pricing
Price discrimination is not possible under
Perfect competition
Monopoly
Oligopoly
Monopolistic Competition
Going to the gym and seeing results, is a form of _______ externalities.
positive
negative
Education is a negative externality.
False
True
