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