Module 9 Market Failure Multiple Choice

Module #9: Market Failure Multiple Choice – Select the best answers to the following questions. 1. What is a market failure? A. When a firm earns zero economic profit. B. When prices fluctuate too quickly in a market. C. When the market fails to allocate goods in a socially optimal way. D. When markets are too competitive and firms can’t survive. E. When taxes are imposed on producers. 2. What is a negative externality? A. When buyers or sellers of a product benefit from the market for that product. B. When buyers or sellers of a product are harmed by the market for that product. C. When people outside a market benefit from that market. D. When people outside a market are harmed by that market. 3. Which of the following is a common example of a positive externality? A. Water pollution. B. Smoking. C. Flu vaccination. D. Traffic. E. Deforestation. 4. In a market with a positive externality, what tends to happen? A. Too little of the product is produced. B. The product becomes non-excludable. C. The market overproduces the product. D. The government bans the product. E. None of the above. 5. What does a supply curve represent in a market with no externalities? A. Total profit. B. Private costs only. C. Private benefits and social benefits. D. Private costs and social costs. E. Government tax revenue. 6. A market that fails to account for social costs and benefits will… A. Create more competition. B. Allocate resources efficiently. C. Produce socially optimal outcomes. D. Not produce the outcomes that are best for society. E. Increase firm profits. 7. What is the primary government tool for addressing negative externalities? A. Subsidies. B. Price floors. C. Taxes. D. Public education. E. Free markets. 8. In the case of positive externalities, what policy tool is commonly used to get the socially-optimal outcome from a market? A. Fines. B. Taxes. C. Import bans. D. Subsidies. E. Price ceilings. 9. What term describes the intention to use a good that someone else pays for? A. Free riding. B. Market inefficiency. C. Positive externality. D. Social surplus. E. Risk aversion. 10. Why do markets fail to provide public goods effectively? A. Public goods have high fixed costs. B. They are excludable, so firms charge prices that are too high. C. Markets are naturally unstable for all goods. D. Public goods are always over-consumed. E. Public goods are unprofitable to sell since a price cannot be charged for them. 11. Which characteristics are associated with public goods? A. Rival and excludable. B. Non-rival and excludable. C. Rival and non-excludable. D. Non-rival and non-excludable. 12. Which of the following is an example of a public good? A. Soda. B. Cell phone service. C. Fireworks display. D. T-shirt. E. A movie at a movie theatre. 13. Which issue is associated with common property resources? A. Price discrimination. B. Natural monopoly. C. Cartel. D. Tragedy of the Commons. E. Free-riding. 14. What is a common reason people overuse common property resources? A. Government taxes. B. Risk aversion. C. Monopolistic pricing. D. Elastic demand. E. Price discrimination. 15. What are common property resources typically lacking, which plays a key role in the Tragedy of the Commons? A. Rivalry. B. External costs. C. Property rights. D. Demand. E. Production costs. 16. What does it mean if a good is excludable? A. People can be prevented from consuming it unless they pay. B. It cannot be provided by private firms. C. Only one person can consume it at a time. D. It generates externalities. E. It can only be consumed by risk averse people. 17. What is the term for when someone consumes a good without reducing availability for others? A. Rival. B. Club usage C. Non-rival D. Excludable E. Non-excludable 18. Why are club goods considered excludable? A. They create externalities. B. They are government funded. C. They diminish when they are used. D. They are only available to certain regions. E. A price can be charged for access even though the good can be shared. 19. How does the government typically fund public goods? A. Borrowing from international organizations. B. Selling shares in public corporations. C. Charging entry fees. D. Collecting taxes. E. Hosting lotteries. 20. What is the danger of governments funding too many public goods? A. Resources are wasted on things people don’t use. B. Private businesses may complain about the government taking their customers. C. Consumers will have too much money to spend, causing inflation. D. Supply chains may collapse. E. Externalities will arise. 21. How can regulation reduce negative externalities? A. By lowering production costs. B. By making goods excludable. C. By improving competition in industries. D. By reducing the peoples’ tax burden. E. By restricting or banning harmful activities. 22. Tragedy of the commons can lead to… A. too many common property resources being available. B. market concentration and the creation of an oligopoly. C. extra tax burden. D. extinction. E. too much being provided by a market. 23. Social benefit = ___. A. private benefit only. B. private benefit + external benefit. C. external benefit only. D. private cost only. E. total revenue. 24. A law banning the dumping of harmful chemicals in a river is a… A. legal regulation. B. economic regulation. C. subsidy. D. cartel. E. tight oligopoly. 25. Which of the following goods is best categorized as a common property resource? A. Movie theater access. B. Bottled water. C. Wild-caught fish. D. Fire protection services. E. Smart phone.