Econ Chapter 10

In the absence of externalities, the "invisible hand" leads a market to maximize A. producer profit from that market. B. total benefit to society from that market. C. both equality and efficiency in that market. D. output of goods or services in that market.

The term market failure refers to A. a market that fails to allocate resources efficiently. B. an unsuccessful advertising campaign which reduces demand. C. ruthless competition among firms. D. a firm that is forced out of business because of losses.

Market failure can be caused by A. too much competition. B. externalities. C. low consumer demand. D. scarcity.

an externality A. results in an equilibrium that does not maximize the total benefits to society. B. causes demand to exceed supply. C. strengthens the role of the "invisible hand" in the marketplace. D. affects buyers but not sellers.

A cost imposed on someone who is neither the consumer nor the producer is called a A. corrective tax. B. command and control policy. C. positive externality. D. negative externality.

Since restored historic buildings convey a positive externality, local governments may choose to A. regulate the demolition of them. B. provide tax breaks to owners who restore them. C. increase property taxes in historic areas. D. Both a and b are correct.

Dioxin emission that results from the production of paper is a good example of a negative externality because A. self-interested paper firms are generally unaware of environmental regulations. B. there are fines for producing too much dioxin. C. self-interested paper producers will not consider the full cost of the dioxin pollution they create. D. toxic emissions are the best example of an externality.

The supply curve for a product reflects the A. willingness to pay of the marginal buyer. B. quantity buyers will ultimately purchase of the product. C. cost to sellers of producing the product. D. seller's profit from producing the product.

The difference between social cost and private cost is a measure of the A. loss in profit to the seller as the result of a negative externality. B. cost of an externality. C. cost reduction when the negative externality is eliminated. D. cost incurred by the government when it intervenes in the market.

Research into new technologies provides a A. negative externality, and too few resources are devoted to research as a result. B. negative externality, and too many resources are devoted to research as a result. C. positive externality, and too few resources are devoted to research as a result. D. positive externality, and too many resources are devoted to research as a result.

When the government intervenes in markets with externalities, it does so in order to A. increase production when negative externalities are present. B. protect the interests of bystanders. C. make certain all benefits are received by market participants. D. reduce production when positive externalities are present.

When a market is characterized by an externality, the government A. can correct the market failure only in the case of positive externalities. B. can correct the market failure only in the case of negative externalities. C. can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. D. cannot correct for externalities due to the existence of patents.

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality, A. the supply curve would adequately reflect the marginal social cost of production. B. consumers will be required to pay a higher price for steel than they would have if the externality were internalized. C. the market equilibrium quantity will not be the socially optimal quantity. D. producers will produce less steel than they otherwise would if the externality were internalized.