CH 2: Market Failures

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What is the primary consequence of market failures?

Reduced prices for consumers

Net social welfare loss (correct)

Efficient allocation of resources

Increased competition among firms

What is an example of a negative externality?

Pollution (correct)

Education

Health care

Public transportation

What characteristic defines public goods?

Rivalrous and excludable

Rivalrous and non-excludable

Non-rivalrous and non-excludable (correct)

Non-rivalrous and excludable

What is an example of a merit good?

Health care (C) Signup and view all the answers

What is a consequence of imperfect competition?

Higher prices and reduced output (C) Signup and view all the answers

What is an example of asymmetric information?

Used cars (B) Signup and view all the answers

What can lead to inefficiencies in the production of goods and services?

Immobility of factors of production (C) Signup and view all the answers

What is a consequence of externalities?

Social costs or benefits exceed private costs or benefits (D) Signup and view all the answers

What is a characteristic of demerit goods?

Overprovided by the market (D) Signup and view all the answers

What is a consequence of market failures?

Reduced social welfare (C) Signup and view all the answers

What can prevent market economies from being efficient?

Imperfect distribution of income and wealth (C) Signup and view all the answers

What is productive inefficiency?

Not using resources to their full potential (C) Signup and view all the answers

What is the purpose of imposing taxes on negative externalities?

To correct market failures (B) Signup and view all the answers

What is the result of allocative inefficiency?

Overproduction of some goods and underproduction of others (B) Signup and view all the answers

What is the primary goal of cost-benefit analysis?

To determine whether the benefits of a project exceed its costs (D) Signup and view all the answers

What is the outcome of negative externalities?

Environmental degradation (B) Signup and view all the answers

Why do market failures often disproportionately affect the less wealthy?

Because they have less resources (C) Signup and view all the answers

What is the purpose of providing subsidies for positive externalities?

To provide incentives for the production of positive externalities (C) Signup and view all the answers

What is the result of economic inequities?

Broader social issues (A) Signup and view all the answers

What is the role of cost-benefit analysis in public policy?

To ensure resources are used efficiently and enhance social welfare (A) Signup and view all the answers

What is the primary reason why firms in private markets cannot easily charge users for public goods?

Because the goods are non-excludable (B) Signup and view all the answers

What is the term for goods that are underprovided by the market due to their benefits being underestimated?

Merit goods (A) Signup and view all the answers

Which of the following is a consequence of imperfect competition in a market?

Higher prices and reduced output (C) Signup and view all the answers

What is the result of asymmetric information in a market?

Choices that do not maximize welfare (A) Signup and view all the answers

What is the primary cause of market failures related to the movement of factors of production?

Immobility of factors of production (A) Signup and view all the answers

What is the term for the costs or benefits of goods and services that are not reflected in market prices?

Externalities (D) Signup and view all the answers

What is the primary reason why market failures can lead to a net social welfare loss?

Because the price mechanism fails to allocate resources efficiently (A) Signup and view all the answers

What is the term for goods that are overprovided by the market due to their costs being underestimated?

Demerit goods (A) Signup and view all the answers

What is the primary characteristic of markets that are dominated by a small number of firms?

Imperfect competition (D) Signup and view all the answers

What is the primary consequence of the immobility of factors of production?

Inefficiencies in the production of goods and services (C) Signup and view all the answers

What is a potential consequence of imperfect distribution of income and wealth in a market economy?

It results in a decrease in the overall efficiency of the economy (C) Signup and view all the answers

Which type of inefficiency arises when resources are not allocated according to consumer preferences?

Allocative Inefficiency (B) Signup and view all the answers

What is the primary goal of government intervention in the market to correct market failures?

To ensure efficient allocation of resources (A) Signup and view all the answers

What is the result of negative externalities in a market economy?

Environmental degradation (B) Signup and view all the answers

What is the purpose of cost-benefit analysis in public policy?

To determine whether the benefits of a project exceed its costs (B) Signup and view all the answers

What is a consequence of economic inequities in a market economy?

Broader social issues (A) Signup and view all the answers

What is the purpose of providing public goods directly by the government?

To correct market failures (D) Signup and view all the answers

What is an example of a positive externality?

Education (B) Signup and view all the answers

What is the result of productive inefficiency in a market economy?

Less output is achieved with the same inputs (A) Signup and view all the answers

What is the primary role of government in correcting market failures?

To correct externalities and provide public goods (C) Signup and view all the answers

Which of the following is NOT a type of market failure?

Free entry and exit of firms (B) Signup and view all the answers

What is the primary cause of underproduction of public goods in private markets?

Difficulty in charging users (A) Signup and view all the answers

Which of the following is an example of a demerit good?

Tobacco (B) Signup and view all the answers

What is the primary consequence of imperfect competition in markets?

Allocative inefficiency (A) Signup and view all the answers

Which of the following is a characteristic of merit goods?

Underprovision by the market (B) Signup and view all the answers

What is the primary cause of market failures related to the movement of factors of production?

Immobility of factors of production (C) Signup and view all the answers

Which of the following is NOT a characteristic of public goods?

Excludability (B) Signup and view all the answers

What is the primary reason why asymmetric information can lead to market failures?

Buyers and sellers do not have equal knowledge (A) Signup and view all the answers

Which of the following is a consequence of externalities?

Net social welfare loss (C) Signup and view all the answers

What is the primary goal of government intervention in the market to correct market failures?

To increase economic efficiency (A) Signup and view all the answers

What is the primary reason why market failures often lead to overproduction of some goods and underproduction of others?

Allocative inefficiency (C) Signup and view all the answers

Which of the following is a consequence of imperfect distribution of income and wealth in a market economy?

Social and economic divides (D) Signup and view all the answers

What is the primary goal of government intervention in the market to correct market failures?

To ensure efficient and equitable resource distribution (B) Signup and view all the answers

What is the primary role of cost-benefit analysis in public policy?

To evaluate the social costs and benefits of interventions (D) Signup and view all the answers

What is the primary consequence of economic inequities in a market economy?

Social and economic divides (A) Signup and view all the answers

What is the primary reason why governments impose taxes on negative externalities?

To correct market failures (A) Signup and view all the answers

What is the primary goal of providing subsidies for positive externalities?

To correct market failures (B) Signup and view all the answers

What is the primary consequence of imperfect distribution of income and wealth on the production of goods and services?

Overproduction of high-end goods (D) Signup and view all the answers

What is the primary role of government intervention in correcting market failures related to public goods?

To provide public goods directly (B) Signup and view all the answers

What is the primary consequence of negative externalities in a market economy?

Environmental degradation (D) Signup and view all the answers

CH 2: Market Failures

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Questions and Answers

What is the primary consequence of market failures?

What is an example of a negative externality?

What characteristic defines public goods?

What is an example of a merit good?

What is a consequence of imperfect competition?

What is an example of asymmetric information?

What can lead to inefficiencies in the production of goods and services?

What is a consequence of externalities?

What is a characteristic of demerit goods?

What is a consequence of market failures?

What can prevent market economies from being efficient?

What is productive inefficiency?

What is the purpose of imposing taxes on negative externalities?

What is the result of allocative inefficiency?

What is the primary goal of cost-benefit analysis?

What is the outcome of negative externalities?

Why do market failures often disproportionately affect the less wealthy?

What is the purpose of providing subsidies for positive externalities?

What is the result of economic inequities?

What is the role of cost-benefit analysis in public policy?

What is the primary reason why firms in private markets cannot easily charge users for public goods?

What is the term for goods that are underprovided by the market due to their benefits being underestimated?

Which of the following is a consequence of imperfect competition in a market?

What is the result of asymmetric information in a market?

What is the primary cause of market failures related to the movement of factors of production?

What is the term for the costs or benefits of goods and services that are not reflected in market prices?

What is the primary reason why market failures can lead to a net social welfare loss?

What is the term for goods that are overprovided by the market due to their costs being underestimated?

What is the primary characteristic of markets that are dominated by a small number of firms?

What is the primary consequence of the immobility of factors of production?

What is a potential consequence of imperfect distribution of income and wealth in a market economy?

Which type of inefficiency arises when resources are not allocated according to consumer preferences?

What is the primary goal of government intervention in the market to correct market failures?

What is the result of negative externalities in a market economy?

What is the purpose of cost-benefit analysis in public policy?

What is a consequence of economic inequities in a market economy?

What is the purpose of providing public goods directly by the government?

What is an example of a positive externality?

What is the result of productive inefficiency in a market economy?

What is the primary role of government in correcting market failures?

Which of the following is NOT a type of market failure?

What is the primary cause of underproduction of public goods in private markets?

Which of the following is an example of a demerit good?

What is the primary consequence of imperfect competition in markets?

Which of the following is a characteristic of merit goods?

What is the primary cause of market failures related to the movement of factors of production?

Which of the following is NOT a characteristic of public goods?

What is the primary reason why asymmetric information can lead to market failures?

Which of the following is a consequence of externalities?

What is the primary goal of government intervention in the market to correct market failures?

What is the primary reason why market failures often lead to overproduction of some goods and underproduction of others?

Which of the following is a consequence of imperfect distribution of income and wealth in a market economy?

What is the primary goal of government intervention in the market to correct market failures?

What is the primary role of cost-benefit analysis in public policy?

What is the primary consequence of economic inequities in a market economy?

What is the primary reason why governments impose taxes on negative externalities?

What is the primary goal of providing subsidies for positive externalities?

What is the primary consequence of imperfect distribution of income and wealth on the production of goods and services?

What is the primary role of government intervention in correcting market failures related to public goods?

What is the primary consequence of negative externalities in a market economy?

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