Question 1

Why does monopoly result in market failure whereas perfect competition does not?

Accepted Answer

Because a monopoly p...

Question 2

A government subsidy is typically used

Accepted Answer

A)   to correct a negative externality.
B)   to provide a public good.
C)   to compensate for the inconvenience imposed on firms subject to government regulation.
D)   to encourage production or consumption of a good creating a positive externality.E) B) and C)
F) A) and D)

Question 3

The Federal Trade Commission is charged with

Accepted Answer

A)   protecting firms from aggressive consumers.
B)   protecting firms from unscrupulous employees.
C)   investigating unfair competitive practices.
D)   determining which goods are public goods.E) B) and C)
F) A) and D)

Question 4

The theory of contestable markets asserts that too much competition among firms in an industry will lead to market failure.

Accepted Answer

A) True 
 B)False

Question 5

The difference between a private good and a public good is that

Accepted Answer

A)   private goods are produced in competitive markets whereas public goods are produced in noncompetitive ones.
B)   externalities are always created in the production process of private goods but not in the production of public goods.
C)   the production of private goods requires a national market whereas public goods are produced locally.
D)   the exclusion principle applies to private goods but not to public goods.E) A) and B)
F) A) and C)

Question 6

Firms and consumers react to economic regulation with creative responses that generate feedback effects which undermine the intent of the regulation.

Accepted Answer

A) True 
 B)False

Question 7

* is the socially optimal quantity. This indicates that A)  production of the good generates a negative externality. B)  production of the good generates a positive externality. C)  the good represented is a public good. D)  the industry producing the good is a monopoly." class="answers-bank-image d-inline" rel="preload" > Figure 8.1
-In Figure 8.1, market equilibrium occurs at X, but X* is the socially optimal quantity.
This indicates that

Accepted Answer

A)   production of the good generates a negative externality.
B)   production of the good generates a positive externality.
C)   the good represented is a public good.
D)   the industry producing the good is a monopoly.E) None of the above
F) C) and D)

Question 8

Which one of the following is a public good?

Accepted Answer

A)   House cleaning services
B)   Landscaping services
C)   National defense
D)   A college educationE) A) and D)
F) None of the above

Question 9

The private sector typically does not produce public goods because it lacks the means to collect payment from all those who benefit.

Accepted Answer

A) True 
 B)False

Question 10

If providing a service results in negative external costs, then

Accepted Answer

A)   the market price is below the true opportunity cost of resources used to provide the service.
B)   the market price is above the true opportunity cost of resources used to provide the service.
C)   market forces will always correct the problem.
D)   the market quantity is too low.E) A) and C)
F) All of the above

Question 11

When consumption of a good generates positive externalities, the free market equilibrium quantity is _________ than the socially optimal amount.

Accepted Answer

The answer of When consumption of a good generates positive...

Question 12

Social regulation instituted by government bodies is designed to promote competition among firms so that consumers will benefit.

Accepted Answer

A) True 
 B)False

Question 13

Market failure arises in market structures that do not produce _________ _________ pricing.

Accepted Answer

The answer of Market failure arises in market structures that...

Question 14

How does economic regulation differ from social regulation?

Accepted Answer

Economic regulation targets pr...

Question 15

Which of the following is an example of a negative externality?

Accepted Answer

A)   Having to pay a fine for a traffic violation
B)   Pollution that results from consuming a good
C)   Donating money to a charity
D)   Improving city parks so that residents will be more inclined to use themE) A) and B)
F) A) and C)

Question 16

The Clayton Act permits firms to engage in price discrimination whenever it will enhance their profits.

Accepted Answer

A) True 
 B)False

Question 17

The problem of negative externalities can be addressed by having new firms enter the industry.

Accepted Answer

A) True 
 B)False

Question 18

Taxing production of a good can lead to an efficient outcome when production generates _________ externalities.

Accepted Answer

The answer of Taxing production of a good can lead...

Question 19

To enforce antitrust laws, the government must decide not only on the relevant product market, but also on the relevant _________ market.

Accepted Answer

The answer of To enforce antitrust laws, the government must...

Question 20

* is the socially optimal quantity. The government can achieve the optimal solution by A)  setting the price at P1. B)  establishing a tax equal to P3 - P1 per unit of the good sold. C)  establishing a tax equal to P3 - P2 per unit of the good sold. D)  setting the price at P4." class="answers-bank-image d-inline" rel="preload" > Figure 8.1
-In Figure 8.1, market equilibrium occurs at X, but X* is the socially optimal quantity. The government can achieve the optimal solution by

Accepted Answer

A)   setting the price at P1.
B)   establishing a tax equal to P3 - P1 per unit of the good sold.
C)   establishing a tax equal to P3 - P2 per unit of the good sold.
D)   setting the price at P4.E) B) and C)
F) None of the above

Exam 8: Market and Government Failures

How does economic regulation differ from social regulation?

Correct AnswerverifiedEconomic regulation targets pr...View AnswerShow Answer

The theory of contestable markets asserts that too much competition among firms in an industry will lead to market failure.

Correct AnswerverifiedShow Answer

The private sector typically does not produce public goods because it lacks the means to collect payment from all those who benefit.

Correct AnswerverifiedShow Answer

When consumption of a good generates positive externalities, the free market equilibrium quantity is _________ than the socially optimal amount.

Correct AnswerverifiedShow Answer

Firms and consumers react to economic regulation with creative responses that generate feedback effects which undermine the intent of the regulation.

Correct AnswerverifiedShow Answer

Which of the following is an example of a negative externality?

Correct AnswerverifiedShow Answer

The Clayton Act permits firms to engage in price discrimination whenever it will enhance their profits.

Correct AnswerverifiedShow Answer

Social regulation instituted by government bodies is designed to promote competition among firms so that consumers will benefit.

Correct AnswerverifiedShow Answer

Market failure arises in market structures that do not produce _________ _________ pricing.

Correct AnswerverifiedShow Answer

Taxing production of a good can lead to an efficient outcome when production generates _________ externalities.

Correct AnswerverifiedShow Answer

Why does monopoly result in market failure whereas perfect competition does not?

Correct AnswerverifiedBecause a monopoly p...View AnswerShow Answer

If providing a service results in negative external costs, then

Correct AnswerverifiedShow Answer

The difference between a private good and a public good is that

Correct AnswerverifiedShow Answer

Figure 8.1 -In Figure 8.1, market equilibrium occurs at X, but X* is the socially optimal quantity. This indicates that

Correct AnswerverifiedShow Answer

To enforce antitrust laws, the government must decide not only on the relevant product market, but also on the relevant _________ market.

Correct AnswerverifiedShow Answer

Figure 8.1 -In Figure 8.1, market equilibrium occurs at X, but X* is the socially optimal quantity. The government can achieve the optimal solution by

Correct AnswerverifiedShow Answer

Which one of the following is a public good?

Correct AnswerverifiedShow Answer

The Federal Trade Commission is charged with

Correct AnswerverifiedShow Answer

A government subsidy is typically used

Correct AnswerverifiedShow Answer

The problem of negative externalities can be addressed by having new firms enter the industry.

Correct AnswerverifiedShow Answer

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Economic regulation targets pr...
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Market failure arises in market structures that do not produce _ _ pricing.

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Because a monopoly p...
View Answer

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Figure 8.1 -In Figure 8.1, market equilibrium occurs at X, but X^* is the socially optimal quantity. This indicates that

Correct Answer
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Correct Answer
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Figure 8.1 -In Figure 8.1, market equilibrium occurs at X, but X^* is the socially optimal quantity. The government can achieve the optimal solution by

Correct Answer
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