Chapter 8
What do economists mean when they say there is "market failure"? Free markets have led to excessive profits. Markets have surpluses or shortages so that government rationing is necessary. Business has introduced a product that consumers did not want. Free markets yield results that economists do not consider socially optimal.
Free markets yield results that economists do not consider socially optimal.
The marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good is known as ____________________.
Marginal social benefit
A(n) ____________________ refers to the adverse effect of a decision on others not taken into account by the decision maker. It occurs when the effects of a decision not taken into account by the decision maker are detrimental to others.
Negative Externality
A(n) ____________________ is a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual. That is, a good that is nonexclusive and nonrival.
Public Good
Assuming government's goal is to benefit society as much as possible: actions with negative and positive externalities should be restricted. actions with negative externalities should be restricted and actions with positive externalities should be encouraged. actions with negative externalities should be encouraged and actions with positive externalities should be restricted. actions with negative and positive externalities should be encouraged.
actions with negative externalities should be restricted and actions with positive externalities should be encouraged.
The best example of a positive externality is: roller coaster rides. education. pollution. alcoholic beverages.
education.
If a market has no externalities, marginal private costs: exceed marginal social costs. are below marginal social costs. equal marginal social costs. intersect marginal social costs.
equal marginal social costs.
The best example of a public good is: government-subsidized lunches. competition. national defense. pollution.
national defense.
Alex is playing his music at full volume in his dorm room. The other people living on his floor find this to be nuisance, but Alex does not care. Alex's music playing is an example of a: Pareto externality. normative externality. negative externality. positive externality.
negative externality.
New developments in computer monitors have made flat panel LCD's cheaper and better than the older CRT models. Given that monitors can contain as much as 8 pounds of lead, disposing of the old monitors creates a: positive externality. negative externality. neutral externality. limited liability.
negative externality.
When my neighbors benefit from my cleaning up of my yard, they are experiencing a: merit good. partnership. positive externality. economic pressure.
positive externality.
When you purchase and eat a hamburger, no one else can eat the same hamburger. When you download a file on the Internet, the file is still available for others to download. Economists explain this difference between hamburgers and computer files by saying that the hamburger is: nonexcludable whereas the computer file is not. excludable whereas the computer file is not. nonrival in consumption whereas the computer file is not. rival in consumption whereas the computer file is not.
rival in consumption whereas the computer file is not.
When negative externalities are present, market failure often occurs because: the cost borne by a third party not involved in the trade is reflected in the market price. the cost borne by a third party not involved in the trade is not reflected in the market price. the existence of imports from foreign countries takes jobs (and income) away from U.S. citizens. consumers will consume the good at a level at which their individual marginal benefits exceed the marginal costs borne by the firm producing the good.
the cost borne by a third party not involved in the trade is not reflected in the market price.