Practice: Market Failures Module
A public good is any good or service that is _____.
nonrivalrous and nonexcludable
A(n) ____ externality is the unpaid benefit of an activity that is enjoyed by a third party.
positive
When a ____ externality exists the socially optimal level of output will be greater than that resulting from a private market.
positive
When a _____ externality exists, the socially optimal level of output will be greater than that resulting from a ____ market.
positive, private
Private markets fail to provide the optimal amount of some goods such as public firework displays because:
private companies will have difficulty getting anybody to pay for them.
Private markets fail to provide the optimal amount of ____________ because they are non rival and non excludable.
public goods
When the consumption of a good or service by one person diminishes the amount available to someone else the good or service is said to be:
rivalrous
Social supply is
the supply of a good or service that reflects both the private and external costs of its production
The supply of a good or service that reflects only the private costs of its production is called
Private Supply
Social demand is the demand for a good or service that reflects both the ______ and _____ benefits of its consumption.
Private, external
Private supply is the supply of a good or service that reflects only the private ____ of its production.
costs
If some people can be prevented or excluded from consuming a good or service then that good or service is called:
excludable
When ______ exist outside intervention may be able to improve the market outcome increasing efficiency and economic surplus.
externalities
One of the justifications for _____ intervention in markets is the potential to improve on the market outcome in markets characterized by externalities.
government
When some people cannot be prevented or excluded from consuming a good or service, that good or service is said to be:
nonexcludable
When the consumption of a good or service by one person does not change the quantity available for consumption by others, the characteristic of the public good we are talking about is ______.
nonrival
When the consumption of a good or service by one person does not diminish the amount available to someone else the good is said to be
nonrivalrous
The benefit enjoyed by a third part that is not directly involved in the production or consumption of good or service is called:
A Positive Externality
Social supply is the supply of a good or service that reflects both the ____ and _____ costs of its production.
Blank 1: private or internal Blank 2: external or public
Governments can provide ______ goods because they have the ability to force people to ________ for a good or service by collecting taxes.
Blank 1: public Blank 2: fund, buy, or pay
A private company cannot provide _____ goods because it does not have the ability to force people to pay for a good or service by collecting _________.
Blank 1: public Blank 2: taxes or tax
A private good is any good or service that ____ is and _____. (Use one word to fill in each blank.)
Blank 1: rivalrous or rival Blank 2: excludable
What would be a reason why the government would choose to tax the sale of cigarettes?
Cigarettes generate negative externalities
Suppose you live near a large factory that produces a good that you do not consume. If you are subjected to loud noises and bad odors from the factory then you experienced
a negative externality
The uncompensated cost of an activity that is imposed on a third party is called
a negative externality
When a negative externality exists, the socially optimal level of output will be _____ (more/less) than that resulting from a private market.
less
Many of the goods that are taxed by the government, such as cigarettes, gasoline, and alcohol generate ____ externalities.
negative
When a ____ externality exists, the socially optimal level of output will be less than that resulting from a private market
negative