Test Market Failures ECON-2302 Summer 16

The following data are for a series of increasingly extensive flood control projects: Refer to the above data. For Plan D marginal costs and marginal benefits are:

$28,000 and $12,000 respectively.

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

From society's perspective, in the presence of a supply-side market failure, the last unit of a good produced typically:

costs more to produce than it provides in benefits.

A public good:

is available to all and cannot be denied to anyone.

Public goods are those for which there:

is nonrivalry and nonexcludability.

A positive externality or spillover benefit occurs when:

the benefits associated with a product exceed those accruing to people who consume it.

At the output level defining allocative efficiency:

the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.

According to the marginal-cost-marginal-benefit rule:

the optimal project size is the one for which MB = MC.

A negative externality or spillover cost occurs when:

the total cost of producing a good exceeds the costs borne by the producer.

The following data are for a series of increasingly extensive flood control projects: Refer to the above data. On the basis of cost-benefit analysis government should undertake:

Plan B

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occurred?

Supply-side market failure

Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the equilibrium output is Q2, we can conclude that the existence of external:

costs has resulted in an overallocation of resources to X.

Nonrivalry and nonexcludability are the main characteristics of:

public goods

Economists consider governments to be "wasteful:"

whenever they over- or underallocate resources to a project.

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

The total revenue received by producers equals the total cost of production.

The following data are for a series of increasingly extensive flood control projects: Refer to the above data. Plan C entails:

an overallocation of resources to flood control.

Refer to the above diagram of the market for product X. Curve St embodies all costs (including externalities) and Dt embodies all benefits (including externalities) associated with the production and consumption of X. Assuming the market equilibrium output is Q1, we can conclude that the existence of external:

benefits has resulted in an underallocation of resources to X.

Cost-benefit analysis attempts to:

compare the benefits and costs associated with any economic project or activity.

People enjoy outdoor holiday lighting displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a:

demand-side market failure

Which of the following is an example of market failure?

negative externalities positive externalities public goods *all of these*