18 Questions
What is the primary difference between complete market failure and partial market failure?
In complete market failure, markets are absent, whereas in partial market failure, markets exist but function inefficiently.
Which of the following is not a reason for market failure according to the text?
Monetary policy
What term is used to describe costs or benefits that do not reflect in the market price and occur outside the market system?
Externalities
How do externalities contribute to market failure?
They introduce costs or benefits that are not reflected in market prices.
Which of the following is an example of externalities as mentioned in the text?
A company polluting a river and affecting the fishing industry downstream.
Why does excessive market power lead to inefficiencies in the market according to the text?
It causes producers to produce less output than in a competitive market and charge higher prices.
What do economists presume about people in a market environment?
They will make choices in their own self-interest.
What is the general belief about a perfectly working market system?
It maximizes self-interest and efficiently allocates resources.
When does 'market failure' occur?
When the market fails to allocate resources efficiently.
What role do prices play in a well-functioning market according to the text?
Prices provide accurate signals to producers and consumers.
Why do rational individuals act to maximize self-interest in the market system?
To get the greatest personal benefit.
In what way does 'market failure' impact market outcomes?
It makes market outcomes inefficient.
What does market failure refer to?
A situation where the market is not functioning in the ideal way.
Which of the following is an example of complete market failure?
Production of pure public goods that are not supplied by the market.
In partial market failure, what is the outcome?
Wrong quantity or price of products leading to economic welfare loss.
What characterizes complete market failure?
Overproduction and underproduction of goods.
Why do markets fail to produce the ideal outcome as per economic theory?
Because markets may not allocate resources to their highest valued uses.
What is the main difference between complete and partial market failure?
Complete market failure lacks supply for certain goods, while partial market failure results in wrong quantity or price.
Test your knowledge on government failure and market intervention. Learn about situations where government interventions can be ineffective and lead to wastage of resources, or even create new and more serious problems. Understand the importance of considering costs and benefits when implementing policies.
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