McGraw Hill Econ Chapter 9

Which of the following could cause external costs?

A coal generated power plant

Which of the following goods would be considered a private good?

A doughnut

Which of the following is an example of the provision of a public good by the government?

A fireworks display at your local city park on the 4th of July

Which of the following statements are true of markets?

A market results in underproduction of public goods. A market results in overproduction of private goods.

Which of the following goods are excludable?

A personal global positioning system (gps) Concert tickets Big-Macs

_________ (one word) is a type of government intervention intended to alter market structure or prevent abuse of market power

Antitrust

Which of the following is an example of the provision of a public good by the government?

Building dams and levies to prevent floods

______ means that sellers can keep people who do not pay for a product from using the product.

Exclusion

True or false: Externalities can exist with only consumption decisions.

False

Government intervention that fails to improve economic outcomes is called:

Government failure

Which of the following terms is used to describe economically inefficient outcomes caused by shortcomings in the public sector?

Government failure

Which of the following are examples of markets that are more likely to experience external benefits?

Immunizations Education Health care

Which of the following justifies government intervention in the economy?

Market failures

Which of the following exemplifies a good that cannot be jointly consumed? (Select all that apply.)

Mary drinks a can of Pepsi. John eats an apple for lunch.

Which of the following occurs when the optimal output is less than the market output?

Negative externality

Which of the following are examples of goods or services exhibiting external benefits?

Preschool education Vaccinations

Which of the following are examples of markets exhibiting external benefits?

Preschool education Vaccinations

When the government intervenes in the macro economy one of its goals is:

Promote economic growth

Which of the following are a source of market failure?

Public Goods Externalities Market power Inequity

Which one of the following examples exemplifies a private good?

Purchasing the last in-stock cell phone at the wireless cell phone store.

Which two of the following are ways for the government to correct for external costs?

Regulations Emission fees

_______ are the principal mechanisms to redistribute income in the United States.

Taxes and transfers

Which of the following are examples of antitrust policy in the U.S.?

The Sherman Act (1890) The Federal Trade Commission Act (1914) The Clayton Act (1914)

When a market experiences an external benefit, which of the following is true?

The social demand for the good causing the externality is above the market demand. The market output is less than the optimal output.

An emission charge is

a fee imposed on polluters, based on the quantity of pollution

An imperfection in the market mechanism that prevents optimal outcomes is called:

a market failure

If the forces of supply and demand have not led us to the best point on the production possibilities curve, then the market system is experiencing

a market failure

Which of the following are examples of substituting external cost for private cost?

abandoning an old car on the street throwing trash out a car window

When positive external benefits occur, the social demand curve lies _________ the market demand curve.

above

A cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction is known as:

an externality

A power plant creating air pollution is an example of:

an externality created by production

A negative externality occurs when:

an overproduction of a product occurs and there is a cost that is borne by a third party

When the social demand curve is above the market demand curve, there are external _______________.

benefits

Which of the following goods could be classified as nonexcludable (no exclusion)?

cleaner air county roads

The _____________ characteristic of a private good is the ability of a seller to prevent people who did not pay for a product from obtaining its benefits.

exclusion

Water and air pollution both result in a market failure known as a(n)

external cost

Whenever _______, a private firm will not allocate its resources and operate its plant in such a way as to maximize social welfare.

external costs exist

A(n) ____________ (Enter one word) causes some of the benefits or costs of a market transaction to be passed on to a third party.

externality

An ___________ (one word) is a cost or a benefit accruing to an individual or a group, a third party, that is external to a market transaction.

externality

A market ___________ implies that the forces of supply and demand have not led us to the best point on the production possibilities curve.

failure

True or false: Externalities can exist with only production decisions.

false

Two examples of government corrections for underproduction in a market that generates external benefits are:

financial aid providing education budgets

Examples of public goods include:

flood control national defense

The situation when people can receive the benefits from a good without having to pay for it is called the _____________ -rider problem.

free

The ______ problem makes it difficult to determine the true demand for a good.

free-rider

The situation occurring when people can receive the benefits from a good without having to pay for it is known as the ______ problem.

free-rider

The goals of macro intervention are

full employment growth price stability

Due to the free rider dilemma, if a society wants a public good, _________ will have intervene.

government

If we want more public goods, ___________ intervention is necessary.

government

When government intervention fails to correct market failure, the result is

government failure.

Market failures can be used to justify:

government intervention in the economy

Market power can result in _______ prices to consumers, enriching the firm.

higher

Social Security, Medicare, and Food stamps are all examples of

income transfers

Environmental policy is designed to eliminate the gap between private costs and social costs. An emissions charge can be used to close this gap by _______ private marginal costs and thus encouraging _______ output.

increasing; lower

Due to the free rider dilemma, some parts of society will conceal their desire for a public good. Identify these parts of society.

individuals households firms

The market mechanism may make some people rich while leaving others poor. If such outcomes violate our vision of fairness, we say this is the market failure of:

inequity

When the market does not distribute output in a fair way, we say this is the market failure of:

inequity.

The doctrine of "leave it alone," of nonintervention by government in the market mechanism is known as

laissez faire

The direct way to reduce negative externalities from a certain activity is to pass __________ limiting that activity.

laws

When positive external benefits occur, the market demand curve lies to the ______ of, or ______ the social demand curve.

left; below

In most conditions, the ______________ mechanism ensures that the right amount of a particular product gets produced.

market

The ________________ mechanism is the use of market prices and sales to signal desired outputs (or resource allocations).

market

The ability to alter the market price of a good or a service is called ___________ power.

market

The four specific sources of , _______________ (one word) failure are public goods, market power, externalities, and inequity.

market

When market forces produce a suboptimal mix of output it is known as ___________ failure.

market

The ______ curve for a good reflects only the direct private benefit to the individuals who consume the product.

market demand

The ______ curve for a good that generates external costs reflects only the direct private benefit to the individuals who consume the product.

market demand

Social demand is equal to

market demand plus externalities

When market forces fail to produce an optimal mix of output it is known as

market failure

In most conditions, the _____ ensures that the right amount of a particular product gets produced.

market mechanism

The use of market prices and sales to signal desired outputs (or resource allocation) is referred to as

market mechanism

Antitrust is government policy that aims to prevent the abuse of:

market power

The general ability to alter the market price of a good or service is referred to as

market power

Firms tend to

maximize profit

If a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a ______ externality.

negative

If the optimal output is less than the market output, then we can conclude that a:

negative

When producers intentionally or unintentionally pass some of the costs of production onto the community, the good causes ______ externalities to occur.

negative

Emission fees and regulations are two ways government can correct for:

negative externalities/external costs

A ______ is a market failure that occurs when a third party to a transaction experiences uncompensated costs.

negative externality

When there is no effective way of keeping individuals from the benefit of a good once it is produced, the good is

non-excludable

The most desirable combination of output attainable with existing resources, technology, and social values is called the _________ mix of output.

optimal

The most desirable combination of output attainable with existing resources, technology, and social values is called the:

optimal mix of output

The most desirable combination of output attainable with existing resources, technology, and social values is the ______ mix of output and the combination of output produced by supply and demand forces is the _______ mix of output.

optimal; market

Goods that generate negative externalities (or external costs) result in an ______ of those goods and goods that generate positive externalities will result in an ________ of those goods.

overproduction; underproduction

Income transfers are

payments to individuals for which no current goods or services are exchanged.

Which of the following are external costs associated with market activities?

pollution traffic congestion

The costs of an economic activity directly borne by the producer (excluding externalities) is known as __________ costs.

private

Environmental policy is designed to eliminate the gap between _______. An emissions charge can be used to close this gap by increasing private marginal costs and thus encouraging reduced output.

private costs and social costs

When your purchase (and consumption) of a good makes it's purchase (and consumption) by another person impossible, the good is said to be a:

private good

People tend to maximize their personal welfare, balancing _______ benefits against _______ costs.

private; private

Market based environmental policy involves removing the gap between _________ cost and _______ cost.

private; social

A good is known as a _________________ good if one person's consumption of the good does not preclude consumption of the same good by others.

public

A good is known as a __________________ good if one person's consumption of the good does not preclude consumption of the same good by others.

public

Within reason, everyone can benefit from ______ goods and there is no effective way of excluding individuals from the benefits derived from them once they exist.

public

National defense and street lighting are examples of

public goods

The four specific sources of microeconomic market failure are

public goods, externalities, market power, and inequity.

The market tends to underproduce _______ goods and overproduce _______ goods.

public; private

Faced with an emission charge a private producer will _______ output.

reduce

The full resource costs of an economic activity, including externalities is known as

social costs

External costs equal

social costs minus private costs

If society wants a public good:

society will have to direct government to provide it

Government can attempt to correct a market experiencing a external benefits by directly producing the good, or by ______ producers and/or consumers of the good.

subsidizing

When you litter you are:

substituting an external cost for a private one

Government can finance the provision of public goods through ___________- . (Enter one word in the blank)

tax

Public goods are financed through government _________ revenue.

tax

If a firm was using a more expensive producion process that reduces pollution, then

the average total cost curve would shift upward the marginal cost curve would shift upward

The market demand curve for a good that generates external costs reflects:

the direct, private benefits to those who consume the product

Laissez faire is

the doctrine of "leave it alone," of nonintervention by government in the market mechanism

Regulation of pollution raise the cost of production because:

the firms must purchase, operate and maintain pollution control equipment

The ability of market prices to signal desired output is called:

the market mechanism

optimal mix of output matches market mix of output matches

the most desirable combination of output attainable with existing resources, technology, and social values the combination of output produced by market forces

The direct way to reduce negative externalities from a certain activity is:

to pass regulations limiting that activity

Whenever external costs exist, market demand will be _____ of social demand.

to the right

The result of positive externalities (external benefits) is that the market produces ______ units of a product.

too few

When external costs exist, the market will produce goods and services that generate _____ pollution, creating a market failure.

too much

The government alters the distribution of income with taxes and

transfer payments.

The problem is that the market tends to _______ public goods. If we want more public goods, we need a nonmarket force—government intervention—to get them.

underproduce

The market tends to _______ public goods and _______ private goods.

underproduce; overproduce

The market will _______ goods that yield external benefits and _______ those that generate external costs.

underproduce; overproduce

Because the link between paying and consuming is broken when it comes to public goods, people are reluctant to buy what they can get free. Thus, if public goods were marketed like private goods, the end result might likely be a(n) _______ of public services.

underproduction

If public goods were marketed like private goods, there would be an _______ of public goods.

underproduction

Examples of income transfers include:

welfare payments unemployment compensation social security benefits

Whenever external costs exist, a private firm

will not allocate its resources and operate its plant in such a way as to maximize social welfare.