ECON 2301: Chapter 4/5
Government failure refers to ______.
economically inefficient outcomes caused by shortcomings in the public sector
When negative externalities exist in a market,
equilibrium output will be greater than the efficient output
Private goods exhibit two consumption characteristics, ________ and __________
rivalry; excludability
Which of the following diverts purchasing power from private spenders to government, thereby removing resources from private use?
taxation
What are the effects of taxation on resources?
- It reduces private demand for resources. - It makes resources available for producing public goods.
Is U.S. border patrol a public good or a private good? What type of good is satellite TV?
U.S. border patrol is a public good, but satellite TV is a private good.
When do demand-side market failures occur?
When demand curves underreport how much consumers are willing and able to pay for a product
When is allocative efficiency of a product achieved?
When the correct quantity of the product is produced relative to other goods and services
___ is defined as the difference between the maximum price a consumer is willing to pay for a product and the actual price.
consumer surplus
The supply curve for a public good is society's marginal _____ curve.
cost
Which of the following refers to reductions of combined consumer and producer surplus associated with the underproduction or overproduction of a good or service?
deadweight loss
What is it called when demand fails to account for the buyer's full willingness to pay?
demand-side market failure
Which of the following would be considered private goods?
-clothing -automobiles
Which of the following are signs of a market failure?
-overallocation of resources -underallocation of resources
Which of the following explains how the government provides the optimal quantity of a public good?
It compares the marginal benefit of an added unit of the good against the government's marginal cost of providing it.
The government can provide the efficient amount of a public good by adhering to which of the following rules?
Marginal benefit equals marginal cost
In a supply and demand chart for a public good, which of the following equates to a marginal-benefit curve?
Willingness-to-pay curve
A comparison of the marginal cost of a project or program with the marginal benefits is known as ______.
a cost-benefit analysis
If a good is nonrival and nonexcludable, then it is known as a:
a public good
A cost-______ analysis involves an assessment of marginal costs and marginal benefits associated with a project or program.
benefit
A(n) ________ is a cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction.
externality
A person who receives benefits from a market transaction without having to pay for them is called a(n) ___ rider
free
_____________ failure refers to economically inefficient outcomes caused by shortcomings in the public sector.
government
The government could correct these divergences between equilibrium output and efficient output by
imposing regulations that force firms to internalize the external costs
The supply curve for any good, private or public is ______.
its marginal-cost curve
The downward-sloping willingness-to-pay curves for public goods are also known as ______.
marginal-benefit curves
Which term describes the inability of a market to bring about the allocation of resources that best satisfies the wants of society?
market failure
Consumer surplus is the difference between the ___ price a consumer is willing to pay for a product and the price paid.
maximum
If a market transaction imposes an uncompensated cost on a third party not directly involved in the transaction, the transaction results in a market failure known as a ______.
negative externality
A public good is
nonrival and nonexcludable
The free-rider problem occurs when
people benefit from the public good without contributing to the cost.
________- surplus is the difference between the actual price a seller receives and the minimum acceptable price.
producer
What is the difference between the actual price a seller receives and the minimum acceptable price?
producer surplus
A good that could be produced by the market system (since exclusion is possible) but government provides to avoid an underallocation of resources is called a:
quasi-public good
An example of an external benefit is
the safety provided by motion-detector lights
True or false: Efficiency losses are reductions of combined consumer and producer surplus associated with both underproduction and overproduction of a product.
true
Public goods are not privately provided because
when goods are nonexcludable, those purchasing the good could allow others the use without requiring compensation