HSPM 412 Exam 3 Questions with Correct Answers| Latest Update Guaranteed Success
When markets are functioning well, then all the [x] of a transaction for a good or service are
absorbed by the [y]. x: costs and benefits
y: buyer and seller
Sometimes, costs or benefits may spill over to a third party not directly involved in the
transaction. These spillover costs and benefits are called? externalities
A negative externality occurs when a _____ spills over. cost
A positive externality occurs when a _____ spills over benefit
Government can play a role in reducing negative externalities by ______ goods when their
production generates spillover costs. taxing
Government can play a role in encouraging positive externalities by ______ goods or services
that generate spillover benefits. providing subsidies
In the presence of ______, the market equilibrium (without intervention) will fail to reach an
efficient outcome. either a positive externality or a negative externality
According to the Coase theorem, resources will be used efficient to maximize social welfare,
even in the face of externalities, provided ______. TWO important prerequisites are
satisfied: in order for the social optimum to be guaranteed, we need
1. Well-defined property rights
2. Low transaction costs
A ______ is a government-sanctioned monopoly in a limited market, usually for one specific
idea, algorithm, or product. patent
When markets are functioning well, then all the [x] of a transaction for a good or service are
absorbed by the [y]. x: costs and benefits
y: buyer and seller
Sometimes, costs or benefits may spill over to a third party not directly involved in the
transaction. These spillover costs and benefits are called? externalities
A negative externality occurs when a _____ spills over. cost
A positive externality occurs when a _____ spills over benefit
Government can play a role in reducing negative externalities by ______ goods when their
production generates spillover costs. taxing
Government can play a role in encouraging positive externalities by ______ goods or services
that generate spillover benefits. providing subsidies
In the presence of ______, the market equilibrium (without intervention) will fail to reach an
efficient outcome. either a positive externality or a negative externality
According to the Coase theorem, resources will be used efficient to maximize social welfare,
even in the face of externalities, provided ______. TWO important prerequisites are
satisfied: in order for the social optimum to be guaranteed, we need
1. Well-defined property rights
2. Low transaction costs
A ______ is a government-sanctioned monopoly in a limited market, usually for one specific
idea, algorithm, or product. patent
