Unit 6 Market Failure Practice

c. There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true? a. With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption. b. Over time, fishing operations will voluntarily leave the market as a result of increased competition. c. There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations. d. The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply. e. The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.

d. less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit

If a positive externality exists in the consumption of a good, the private market equilibrium quantity will be a. the same as the socially optimal quantity, since the marginal private benefit equals the marginal social benefit b. greater than the socially optimal quantity, since the marginal social cost exceeds the marginal private cost c. greater than the socially optimal quantity, since the marginal private benefit exceeds the marginal social benefit d. less than the socially optimal quantity, since the marginal social benefit exceeds the marginal private benefit e. less than the socially optimal quantity, since the marginal private benefit exceeds the marginal private cost

d. Marginal social benefit equals marginal social cost.

In the absence of externalities, which of the following is true of a competitive market in equilibrium? a. Consumer surplus is maximized. b. Producer surplus is maximized. c. Marginal benefit exceeds marginal cost. d. Marginal social benefit equals marginal social cost. e. Consumer surplus equals producer surplus.

c. A hurricane warning siren

Which of the following is an example of a pure public good? a. A hamburger sold in a restaurant on a college campus b. Medical education to become a doctor c. A hurricane warning siren d. Paper pulp produced with pollution emissions e. A ticket to the movie theater

a. An oligopoly market structure

Which of the following is likely to result in allocative inefficiency? a. An oligopoly market structure b. A firm producing at the level of output where price is equal to marginal cost c. A perfectly competitive market in long-run equilibrium with no externalities d. A perfectly price-discriminating monopoly e. A monopsonist that faces a minimum wage where marginal revenue product equals the supply of labor

e. Nonrival consumption and a free-rider problem

Which pair of characteristics is associated with a pure public good? a. Nonrival consumption and ability to exclude nonpayers b. Increasing marginal utility of consumption and a free-rider problem c. Rival consumption and an ability to exclude nonpayers d. Rival consumption and a free-rider problem e. Nonrival consumption and a free-rider problem

d. Positive externality; a corrective per-unit subsidy equal to the external benefit of $4 will lead to the socially optimal output.

The graph above depicts the marginal private benefit (MPB), the marginal social benefit (MSB), and the marginal social cost of producing a good. Which of the following correctly identifies both the problem illustrated in the graph and the remedy to the problem? a. Negative externality; a corrective per-unit tax equal to the external cost of $2 will lead to the socially optimal output. b. Negative externality; a corrective per-unit tax equal to the external cost of $4 will lead to the socially optimal output. c. Positive externality; a corrective per-unit subsidy equal to the external benefit of $2 will lead to the socially optimal output. d. Positive externality; a corrective per-unit subsidy equal to the external benefit of $4 will lead to the socially optimal output. e. Positive externality; a corrective per-unit tax equal to the external benefit of $6 will lead to the socially optimal output.

e. There is a negative externality because marginal social cost exceeds marginal private cost.

The graph above depicts the marginal social cost (MSC), marginal private cost (MPC), and marginal social benefit associated with the production of a good that generates an externality. Based on the information in the graph, which of the following is true? a. There is a positive externality because, relative to the socially optimal output, too little is produced in an unregulated market. b. The unregulated market produces Qb and sets price at Pb. c. The allocatively efficient level of output is Qp. d. The good generates an external benefit equal to AB. e. There is a negative externality because marginal social cost exceeds marginal private cost.

e. the marginal social benefit of production is equal to the marginal social cost

The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes? a. the level of output produced is maximized b. the marginal benefit of production is maximized c. the marginal cost of production is minimized d. the marginal social benefit of production exceeds the marginal social cost e. the marginal social benefit of production is equal to the marginal social cost