Government Failure and Market Intervention Quiz
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Questions and Answers

What is the primary difference between complete market failure and partial market failure?

  • In complete market failure, inefficiency is due to externalities, while in partial market failure, inefficiency is due to market power.
  • Complete market failure results in overproduction, while partial market failure leads to underproduction.
  • Complete market failure is irreversible, while partial market failure can be corrected over time.
  • In complete market failure, markets are absent, whereas in partial market failure, markets exist but function inefficiently. (correct)

    • Which of the following is not a reason for market failure according to the text?

  • Market power
  • Public goods
  • Externalities
  • Monetary policy (correct)

    • What term is used to describe costs or benefits that do not reflect in the market price and occur outside the market system?

  • Price differentials
  • Market failures
  • Market power
  • Externalities (correct)

    • How do externalities contribute to market failure?

    <p>They introduce costs or benefits that are not reflected in market prices.</p> Signup and view all the answers

    Which of the following is an example of externalities as mentioned in the text?

    <p>A company polluting a river and affecting the fishing industry downstream.</p> Signup and view all the answers

    Why does excessive market power lead to inefficiencies in the market according to the text?

    <p>It causes producers to produce less output than in a competitive market and charge higher prices.</p> Signup and view all the answers

    What do economists presume about people in a market environment?

    <p>They will make choices in their own self-interest.</p> Signup and view all the answers

    What is the general belief about a perfectly working market system?

    <p>It maximizes self-interest and efficiently allocates resources.</p> Signup and view all the answers

    When does 'market failure' occur?

    <p>When the market fails to allocate resources efficiently.</p> Signup and view all the answers

    What role do prices play in a well-functioning market according to the text?

    <p>Prices provide accurate signals to producers and consumers.</p> Signup and view all the answers

    Why do rational individuals act to maximize self-interest in the market system?

    <p>To get the greatest personal benefit.</p> Signup and view all the answers

    In what way does 'market failure' impact market outcomes?

    <p>It makes market outcomes inefficient.</p> Signup and view all the answers

    What does market failure refer to?

    <p>A situation where the market is not functioning in the ideal way.</p> Signup and view all the answers

    Which of the following is an example of complete market failure?

    <p>Production of pure public goods that are not supplied by the market.</p> Signup and view all the answers

    In partial market failure, what is the outcome?

    <p>Wrong quantity or price of products leading to economic welfare loss.</p> Signup and view all the answers

    What characterizes complete market failure?

    <p>Overproduction and underproduction of goods.</p> Signup and view all the answers

    Why do markets fail to produce the ideal outcome as per economic theory?

    <p>Because markets may not allocate resources to their highest valued uses.</p> Signup and view all the answers

    What is the main difference between complete and partial market failure?

    <p>Complete market failure lacks supply for certain goods, while partial market failure results in wrong quantity or price.</p> Signup and view all the answers

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