LiteratureCompositionCh 4 Review Questions
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Ch 4 Review Questions

Harlow Davis avatar Harlow Davis
2 September 2022
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Market failure is said to have occurred whenever:
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private markets do not allocate resources in the most economically desirable way
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Which of the following illustrates that market failure has occurred?
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Negative externalities, positive externalities, and public goods
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People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:
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demand-side market failure.
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Supply-side market failures occur when:
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the demand and supply curves don't reflect the full cost of producing a good or service.
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Consumer surplus:
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is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.
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Producer surplus:
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is the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price
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Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:
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a consumer surplus of $9 and Nathan experiences a producer surplus of $3
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Allocative efficiency occurs only at that output where:
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the combined amounts of consumer surplus and producer surplus are maximized.
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The two main characteristics of a public good are:
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nonrivalry and nonexcludability
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Which of the following is an example of a public good?
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A weather warning system
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A positive externality or spillover benefit occurs when:
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the benefits associated with a product exceed those accruing to people who consume it.
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A negative externality or spillover cost occurs when:
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the total cost of producing a good exceeds the costs borne by the producer.
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The socially optimal amount of pollution abatement occurs where society's marginal:
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benefit of abatement equals its marginal cost of abatement.
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According to the Coase theorem:
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private individuals can often negotiate their own resolution of externality problems, without the need for government intervention.
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Upon learning that his auto transmission is about to fail, Ray Roma sells his car to an unsuspecting buyer. This circumstance illustrates the:
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adverse selection problem.
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In a television advertisement for AFLAC supplemental health insurance, an ice skater says to his skating partner, "Do you want to try a triple jump?" She responds, "Why not, I have AFLAC." This response illustrates the:
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moral hazard problem.
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Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of:
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asymmetric information