HSPM 412 Exam 3 Questions and Answers Graded A+
When markets are functioning well, then all the [x] of a transaction for a good or service are absorbed
by the [y]. - Answers 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? - Answers externalities
A negative externality occurs when a _____ spills over. - Answers cost
A positive externality occurs when a _____ spills over - Answers benefit
Government can play a role in reducing negative externalities by ______ goods when their production
generates spillover costs. - Answers taxing
Government can play a role in encouraging positive externalities by ______ goods or services that
generate spillover benefits. - Answers providing subsidies
In the presence of ______, the market equilibrium (without intervention) will fail to reach an efficient
outcome. - Answers 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 ______. - Answers 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. - Answers patent
According to one estimate, fewer than 1 in ______ new chemical entities researched by major drug
companies ever made it to market. - Answers 5,000
By temporarily protecting drug companies from price competition, a patent system ______. - Answers 1.
Benefits future consumers (by encouraging the invention of new drugs that will protect their health and
extend their life expectancy)
2. Imposes costs on today's consumers (in the form of higher, sometimes unaffordable, drug prices)
3. Preserves the financial incentives for drug developers to invest in R&D
When markets are functioning well, then all the [x] of a transaction for a good or service are absorbed
by the [y]. - Answers 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? - Answers externalities
A negative externality occurs when a _____ spills over. - Answers cost
A positive externality occurs when a _____ spills over - Answers benefit
Government can play a role in reducing negative externalities by ______ goods when their production
generates spillover costs. - Answers taxing
Government can play a role in encouraging positive externalities by ______ goods or services that
generate spillover benefits. - Answers providing subsidies
In the presence of ______, the market equilibrium (without intervention) will fail to reach an efficient
outcome. - Answers 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 ______. - Answers 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. - Answers patent
According to one estimate, fewer than 1 in ______ new chemical entities researched by major drug
companies ever made it to market. - Answers 5,000
By temporarily protecting drug companies from price competition, a patent system ______. - Answers 1.
Benefits future consumers (by encouraging the invention of new drugs that will protect their health and
extend their life expectancy)
2. Imposes costs on today's consumers (in the form of higher, sometimes unaffordable, drug prices)
3. Preserves the financial incentives for drug developers to invest in R&D
