Econ 111 - market failure (practice questions) 100%
CORRECT ANSWERS!!
When the government intervenes in markets with externalities, why does it do so?
A.) to increase production when negative externalities are present
B.) to better coordinate the actions of buyers and sellers
C.) to make certain all benefits are received by market participants
D.) To protect the interests of bystanders correct answers D
What does excessive fishing occur?
A.) fishermen are concerned about the population dynamics of fish biomass, not current
harvest rates
B.) fisherman rely on government managers to worry about fish populations
C.) each individual fisherman has a little incentive to maintain a species for the next year
D.) fisherman have other marketable skills and do not fear exploitation of fish reserves
correct answers C
In the absence of externalities, what can be said about the invisible hand of the marketplace?
A.) it induces people to act in a manner inconsistent with self interest
B.) it is unable to resolve inherent inefficiencies in the market system
C.) it increases the transaction costs of contracting between parties in an exchange
D.) it leads to a market outcome that maximizes total benefit to society correct answers D
What will arise when negative externalities are present in a market?
A.) Government will regulate the externalities in the market
B.) The market will not be able to reach any equilibrium situation
C.) Social costs will be greater than private costs
D.) private costs will be greater than social cost correct answers B
What do externalities cause markets to do?
A.) cause price to be different than the equilibrium price
B.) benefit producers at the expense consumers
C.) fail to allocate resources efficiently
D.) cause markets to operate more equitably correct answers C
Which of these common resources is least regulated today?
A.) Government land in the north
B.) The ocean
C.) National parks
D.) The great lakes correct answers B
Hikers frequently claim the livestock grazing in the wilderness recreation areas reduces the
satisfaction of the recreational hiking experience. What is the economic explanation for this
conflict?
A.) hikers do not value livestock as much as ranchers
B.) grazing cows is a profit generating activity, but hiking is not
C.) grazing cows create negative externalities that makes hiking less pleasant
D.) ranchers are insensitive to the recreational use of public lands correct answers C
, What does it mean when a good is excludable?
A.) One person's use of the good diminishes another persons ability to use it
B.) no more than one person can use the good at a time
C.) people can be prevented from using the good
D.) everyone will be excluded from obtaining the good correct answers C
Why is national defence provided by the government?
A.) free riders make it difficult for private markets to supply the socially optimal quantity
B.) if the good were produced in private markets, most likely to much of the good would be
produced
C.) Products provided by the government can be produced more efficiently
D.) It is impossible for private markets to produce public goods correct answers A
Why do private markets fail to account for externalities?
A.) decision makers in the market fail to take into account the external effects of their
behaviour
B.) externalities don't current private markets
C.) sellers include costs associated with externalities in the price of their products
D.) The government can easily correct any adverse effect on the market the externalities may
cause correct answers A
Why is simply asking people how much they value a highway not a reliable way of
measuring the benefits and costs?
A.) answers to the survey questions will always be downwardly biased
B.) those who stand to lose have an incentive to exaggerate their true costs
C.) not everyone asked will be using the highway
D.) those who stand to gain have an incentive to tell the truth correct answers B
What does internalizing an externality refer to?
A.) making buyers and sellers take into account external effects of their actions
B.) making buyers pay the full price for the products they purchase
C.) making certain that all market transaction benefits go to only buyers and sellers
D.) making certain government does not disrupt the internal working of the market correct
answers A
What is a free rider?
A.) A person who will only purchase a product on sale
B.) A person who can produce a good at no cost
C.) A person who takes advantage of the tax loopholes to lower his taxes
D.) A person who receives the benefits of a good but avoids paying for it correct answers D
What goods would be considered both excludible and rival in consumption?
A.) private goods
B.) natural monopolies
C.) common resources
D.) public goods correct answers A
When dealing with externalities, how can we correct market failure?
A.) in the case of both positive and negative externalities, government regulation is necessary
to induce market participants to internalize the externality
CORRECT ANSWERS!!
When the government intervenes in markets with externalities, why does it do so?
A.) to increase production when negative externalities are present
B.) to better coordinate the actions of buyers and sellers
C.) to make certain all benefits are received by market participants
D.) To protect the interests of bystanders correct answers D
What does excessive fishing occur?
A.) fishermen are concerned about the population dynamics of fish biomass, not current
harvest rates
B.) fisherman rely on government managers to worry about fish populations
C.) each individual fisherman has a little incentive to maintain a species for the next year
D.) fisherman have other marketable skills and do not fear exploitation of fish reserves
correct answers C
In the absence of externalities, what can be said about the invisible hand of the marketplace?
A.) it induces people to act in a manner inconsistent with self interest
B.) it is unable to resolve inherent inefficiencies in the market system
C.) it increases the transaction costs of contracting between parties in an exchange
D.) it leads to a market outcome that maximizes total benefit to society correct answers D
What will arise when negative externalities are present in a market?
A.) Government will regulate the externalities in the market
B.) The market will not be able to reach any equilibrium situation
C.) Social costs will be greater than private costs
D.) private costs will be greater than social cost correct answers B
What do externalities cause markets to do?
A.) cause price to be different than the equilibrium price
B.) benefit producers at the expense consumers
C.) fail to allocate resources efficiently
D.) cause markets to operate more equitably correct answers C
Which of these common resources is least regulated today?
A.) Government land in the north
B.) The ocean
C.) National parks
D.) The great lakes correct answers B
Hikers frequently claim the livestock grazing in the wilderness recreation areas reduces the
satisfaction of the recreational hiking experience. What is the economic explanation for this
conflict?
A.) hikers do not value livestock as much as ranchers
B.) grazing cows is a profit generating activity, but hiking is not
C.) grazing cows create negative externalities that makes hiking less pleasant
D.) ranchers are insensitive to the recreational use of public lands correct answers C
, What does it mean when a good is excludable?
A.) One person's use of the good diminishes another persons ability to use it
B.) no more than one person can use the good at a time
C.) people can be prevented from using the good
D.) everyone will be excluded from obtaining the good correct answers C
Why is national defence provided by the government?
A.) free riders make it difficult for private markets to supply the socially optimal quantity
B.) if the good were produced in private markets, most likely to much of the good would be
produced
C.) Products provided by the government can be produced more efficiently
D.) It is impossible for private markets to produce public goods correct answers A
Why do private markets fail to account for externalities?
A.) decision makers in the market fail to take into account the external effects of their
behaviour
B.) externalities don't current private markets
C.) sellers include costs associated with externalities in the price of their products
D.) The government can easily correct any adverse effect on the market the externalities may
cause correct answers A
Why is simply asking people how much they value a highway not a reliable way of
measuring the benefits and costs?
A.) answers to the survey questions will always be downwardly biased
B.) those who stand to lose have an incentive to exaggerate their true costs
C.) not everyone asked will be using the highway
D.) those who stand to gain have an incentive to tell the truth correct answers B
What does internalizing an externality refer to?
A.) making buyers and sellers take into account external effects of their actions
B.) making buyers pay the full price for the products they purchase
C.) making certain that all market transaction benefits go to only buyers and sellers
D.) making certain government does not disrupt the internal working of the market correct
answers A
What is a free rider?
A.) A person who will only purchase a product on sale
B.) A person who can produce a good at no cost
C.) A person who takes advantage of the tax loopholes to lower his taxes
D.) A person who receives the benefits of a good but avoids paying for it correct answers D
What goods would be considered both excludible and rival in consumption?
A.) private goods
B.) natural monopolies
C.) common resources
D.) public goods correct answers A
When dealing with externalities, how can we correct market failure?
A.) in the case of both positive and negative externalities, government regulation is necessary
to induce market participants to internalize the externality
