A government decides to replace a private company with its own to collect household waste. This might be justified if

Private companies might put profits before customer needs.

What does AD Valorem tax mean?

An indrect tax expressed as a % of the $ of a product Eg VAT

Which one of the following statements referring to a market economy is correct?

Prices do not always reflect external costs.

How would you describe the social optimum point?

Marginal Social Cost = Marginal Social Benefit

What is moral hazard?

A person insuranced more likely to take risk

If Good X is produced in a free market, which ignores externalities, then without intervention there is likely to be

negative externalities of JK on the last unit produced.

Fixed price by the Government at a higher level than the equilibrium

What is market failure?

When the allocation of goods and resources is inefficient.

How would you describe the free market point?

Supply = demand, Marginal Private Cost = Marginal Private Benefit

What does box A represent?

Burden of tax paid by the consumer

What does box B represent?

Burden of tax paid by the producer

An essential characteristic of a public good is that it is non-excludable. This means that

People could consume the good without paying for it.

Non-rivalry refers to the fact that, once a good is provided...

My use does not reduce the amount that you can consume

What is a negative consumption externality associated with chewing gum?

discarded chewing gum on pavements

The amount of training undertaken in a mixed economy is not socially optimal. What could explain this?

The individual’s benefit from training is less than the benefit to society.

Define Asymmetric Information

When one party has more information than the other

What is a moral hazard?

people act more recklessly when protected from risk which hurts the company

Which of the following would be the most appropriate to tackle the market failure associated with alcohol consumption?

An increase in duty on alcoholic beverages

Negative externalities from Waste Disposal?

Landfill = negative for people who live near by, Landfill = damages the ground

The generation of electricity by coal-fired power stations causes external costs. Who bears these external costs?

the people living in the area where the electricity is generated

Which would be treated as an external cost arising from the growing volume of cars on Britain's roads

Higher prices in shops due to increased costs of transportation

What is Moral Hazard?

One party has more information after a signed contract

Negative externalities in consumption results in market failure. This is because at the free market equilibrium

marginal social benefit is less than the marginal private benefit

Junk food creates negative externalities of consumption because

Eating too much could create health costs for tax-payers

In the context of public goods, what does "non-rivalrous" mean?

Consumption by one person does not affect others

What does box A+B represent?

Amount of revenue received by the government

Money provided by the government to help reduce costs

The incidence of a tax

refers to those who bear the most burden of taxation

How can you tell the amount of tax that has been placed on the product or service?

The distance between the two supply curves

What does box C+D represent?

Dead Weight Welfare Loss - lost benefit to society

What is non-excludability?

It is impossible to prevent other people from gaining access

studbud

1.3. Market Failure

54 termsStudBud Administration23 plays

Imported from external platform

Flashcards54 cardsFPractice quizPHost liveL

Questions 54

Answers

1
A good that is non-exclusive and non-rivalry
Public goods
Invisible goods
Demerit goods
Merit goods
2
A maximum price results in a
surplus
allocative efficiency
shortage
some CS transferring to PS
3
Subsidies may encourage firms to be inefficient and they come to rely on subsidy rather than improve efficiency
Disadvantage of Subsidy
Disadvantage of Indirect Tax
Advantage of Subsidy
Advantage of Indirect Tax
4
What is a necessary characteristic of a public good?
It has a fixed maximum price.
It has an opportunity cost of production of zero.
It is non-excludable.
It is an essential good.
5
Market failure happens it is not possible for firms to withhold products from consumers who refuse to pay. This is
Asymmetric information
The tragedy of the commons
The free rider problem
Rational economic decisions by consumers
6
A government decides to replace a private company with its own to collect household waste. This might be justified if
Because waste collection is a public good.
Private companies might put profits before customer needs.
Costs of waste collection are bound to be lower if paid out of local taxes.
Private companies are always less efficient than government companies.
7
What does AD Valorem tax mean?
any type of tax applied to a product
All of the above
Produced means of productions (Tools, machines,equipment)ETC
An indrect tax expressed as a % of the $ of a product Eg VAT
8
Which one of the following statements referring to a market economy is correct?
Large firms are more efficient than small firms.
Efficiency is always indicated by high profits.
Monopolists take no account of consumer preferences.
Prices do not always reflect external costs.
9
How would you describe the social optimum point?
Marginal Social Cost = Marginal Private Cost
Marginal Private Cost = Marginal Private Benefit
Supply = Demand
Marginal Social Cost = Marginal Social Benefit
10
What is moral hazard?
A person who doesn't have insurance
A person claiming on someone's insurance
A person insuranced more likely to take risk
A person insured less likely to take risks
11
Marginal social benefits of vaccinations exceed the marginal private benefit
False
True
12
If Good X is produced in a free market, which ignores externalities, then without intervention there is likely to be
underconsumption of NL.
overpricing of EF.
positive externalities of GH on the last unit produced
negative externalities of JK on the last unit produced.
13
A price floor is a
Fixed price by the Government at a higher level than the equilibrium
Price set by the dominate firm in an industry
Fixed price by the Government at a lower level than the equilibrium
A level of income giving a minimal standard of living
14
What is market failure?
When everyone has perfect knowledge about the market.
When there are not economies of scale.
When there is a 3-firm concentration ration of 95%.
When the allocation of goods and resources is inefficient.
15
How would you describe the free market point?
Marginal Social Cost = Marginal Private Cost
Supply = demand
Marginal Social Cost = Marginal Social Benefit
Marginal Private Cost = Marginal Private Benefit
16
What does box A represent?
Lost consumer surplus
Amount of revenue received by the government
Burden of tax paid by the consumer
Burden of tax paid by the producer
17
What does box D represent?
Lost producer surplus
Burden of tax paid by the consumer
Amount of revenue received by the government
Lost consumer surplus
18
An indirect tax is one that...
consumers pay on what they buy
comsumers pay on all imported goods
consumers pay to local government via the central government
consumers pay on what they receive as income
19
What does box B represent?
Burden of tax paid by the consumer
Amount of revenue received by the government
Lost consumer surplus
Burden of tax paid by the producer
20
An essential characteristic of a public good is that it is non-excludable. This means that
People could consume the good without paying for it.
The government should not levy a tax for providing public goods.
There is no opportunity cost in the provision of public goods.
Public goods are of equal benefit to all consumers
21
Non-rivalry refers to the fact that, once a good is provided...
The good faces an upward sloping supply curve
My use reduces the amount available to you
My use does not reduce the amount that you can consume
No-one can be prevented from benefitting from it
22
Which is the social optimum?
C
None of the above
B
A
23
What is a negative consumption externality associated with chewing gum?
smells from chewing gum factories
costs of the ingredients in chewing gum
better dental hygiene from chewing gum
discarded chewing gum on pavements
24
The amount of training undertaken in a mixed economy is not socially optimal. What could explain this?
Training is a large variable cost for firms.
The individual’s benefit from training is less than the benefit to society.
In a mixed economy training is a public good.
Experienced educators are a scarce resource.
25
Which of the following defines a negative externality?
MSC > MPC
MSC < MPB
MPC > MSC
MSC > MSB
26
What does box C represent?
Burden of tax paid by the producer
Burden of tax paid by the consumer
Lost consumer surplus
Amount of revenue received by the government
27
Which is closest to being a pure public good?
health services
street lighting
electricity
water supply
28
Define Asymmetric Information
When one party has more information than the other
A state of perfect information
When producers take advantage of Consumers
When consumers take advantage of producers
29
What is a moral hazard?
people act more cautiously when risk is not a factor
people act recklessly when not protected from risk which helps the company
the company doesn't have to worry about financial risks
people act more recklessly when protected from risk which hurts the company
30
Information failure can cause a misallocation of resources because consumers to little or too much compared to optimum.
True
False
31
Which of the following would be the most appropriate to tackle the market failure associated with alcohol consumption?
Higher spending on A&E departments
A reduced minimum price per unit of alcohol
A legally enforced maximum price for alcohol
An increase in duty on alcoholic beverages
32
Negative externalities from Waste Disposal?
Recycling waste
Landfill = negative for people who live near by
Government encourage more recycling of waste
Landfill = damages the ground
33
If there are negative production externalities, a misallocation of resources is likely to occur because
there is underconsumption of JH.
there is overproduction of JH.
market output is too low.
market price is too high.
34
The generation of electricity by coal-fired power stations causes external costs. Who bears these external costs?
the government that subsidises the production of electricity
the people living in the area where the electricity is generated
the distributors who sell the electricity
the electricity company that produces the electricity
35
Which would be treated as an external cost arising from the growing volume of cars on Britain's roads
The cost of car purchase and replacement
The costs of purchasing fuel
Depreciation of car values due to car mileage
Higher prices in shops due to increased costs of transportation
36
If you drive a car, external costs are imposed on other people who live in the city such as
Cost of petrol
Cost of car insurance
Congestion
Air pollution
37
Which of the following goods is characterized by non-rivalry and non-excludability?
fish in the ocean
satellite radio
tornado siren
city streets
38
What is Moral Hazard?
Responsibility to protect is not being respected
One party has more information after a signed contract
When one party has a moral duty to protect
Ethics being harmed when making a contract
39
Negative externalities in consumption results in market failure. This is because at the free market equilibrium
marginal social benefit is less than the marginal private benefit
marginal social cost is less than the marginal private benefit.
marginal private benefit is greater than the marginal private cost
marginal private cost is greater than the marginal social cost.
40
Junk food creates negative externalities of consumption because
Eating too much will create health issues for the consumer
Eating too much could create health costs for tax-payers
Junk food can be addictive
Eating too much will make you fat
41
In the context of public goods, what does "non-rivalrous" mean?
Consumption by one person reduces the amount available for others
Consumption by one person increases the amount available for others
Consumption by one person does not affect others
Consumption is limited to a specific group
42
What is classified as a public good by economists?
government-funded hospitals
the internet
flood defences
government-run national parks
43
What letter(s) represents the cost to the government of the subsidy? (alphabetical order)
Q1-Q
B C
A B C D E F
B C E F G H
44
Asymetrical information is likely to ________ resource allocation
Promote
Distort
Remove
45
What does box A+B represent?
Burden of tax paid by the producer
Amount of revenue received by the government
Lost consumer surplus
Burden of tax paid by the consumer
46
What is a subsidy?
Minimum price for a good established by the government
Maximum price for a good established by the government
Money provided by the government to help reduce costs
Money provided by the government to help increase costs
47
The incidence of a tax
is a tax paid by self-employed workers
is a special tax on individuals with high income
refers to those who bear the most burden of taxation
is a benefit
48
How can you tell the amount of tax that has been placed on the product or service?
Lost producer surplus
The distance between the two demand curves
Dead Weight Welfare Loss
The distance between the two supply curves
49
Which of these goods or services is completely non-rival in consumption?
The National Health Service
The state education service
Free school lunches
A public drainage system
50
What does box C+D represent?
Burden of tax paid by the producer
Lost producer surplus
Dead Weight Welfare Loss - lost benefit to society
Amount of revenue received by the government
51
What is non-excludability?
It is possible to prevent other people from gaining access
Sold only at one store
It is impossible to prevent other people from gaining access
One person’s use does not diminish other people's use
52
What is consumer surplus with the subsidy?
A + B + C + F + G
A + B + C + F
A + B
A + B + C
53
What term describes a situation where a person can be prevented from using a good if they do not pay for it?
Missing market
Free rider
Non-rivalrous
Excludability
54
What is implied by the existence of a negative externality?
Individuals are not the best judges of their own well-being
Output is below its socially optimum level
Producers are not always seeking to maximise profits
There is a divergence between private and social costs

1.3. Market Failure Flashcards | StudBud