Emmanuel Garcia - Market Failures pt2
Emmanuel Garcia - Market Failures pt2
Emmanuel Garcia - Market Failures pt2
1. If a per unit tax is imposed on a producer of a good with a negative externality, then the tax shifts the
producer's
a. marginal cost curve to the right
b. marginal cost curve to the left
c. total fixed cost to the left
d. total fixed cost to the right
e. price downward
2. The private market will not provide enough of a pure public good because of
a. negative externalities
b. obligatory controls over production methods
c. public choice not to produce the good
d. special interest lobbies
e. the free rider problem
9. A government-sponsored cash subsidy to people who plant trees will have the effect of
a. decreasing the supply of privately-grown trees
b. result in government failure
c. increasing the demand for trees
d. increasing the supply of trees
e. lowering the price of trees
10. Suppose that farmers decide individually whether or not to get their own cattle vaccinated against
anthrax. Which of the following results?
a. There is market failure because the equilibrium quantity of vaccine is too low.
b. There is market failure because the equilibrium price of vaccine is too low.
c. There is market failure because both the equilibrium price and quantity of vaccine are too high.
d. There is no market failure because the market will tend toward equilibrium.
e. There is no market failure, although both the equilibrium price and quantity of vaccine are too high.
The following questions relate to the applied, global, and theoretical perspectives in the text.
11. Typically, the property right to an unobstructed or picturesque view has not been protected in United
States courts unless
a. the individual claiming such a property right is a celebrity
b. property owners who must clear trees and shrubs that obstruct a view are compensated
c. the property right is passed on through a covenant or easement
d. removing obstructions to the view creates a financial hardship for the property owner e. the
case originates in California
12. Sulfur dioxide and nitrogen oxides are compounds that cause acid rain when they are released into the
atmosphere. Acid rain in Canada is
a. a negative externality that is caused mainly by releases of these compounds in the United States
b. caused entirely by releases of these compounds in Canada
c. less of a problem because lime in the soil there neutralizes the acid
d. decreasing because firms in the United States voluntarily reduced emissions of these compounds
e. decreasing because of stringent antipollution laws in Canada
13. The Coase theorem suggests that private negotiation will lead to the correction of market failure when
a. only a few people are involved
b. property rights are clearly recognized
c. negotiation costs are low
d. people are willing to cooperate
e. a, b, and c must hold true
14. A situation where the seller has information regarding the hazards of a product, yet continues to sell it
without informing consumers (e.g., cigarette producers), is described as ___________________, whereas,
a situation where a homeowner doesn’t bother to replace the battery in a smoke detector because she
holds a generous insurance policy is called ___________________. a. asymmetric information;
moral hazard
b. asymmetric hazard; moral information
c. information hazard; moral asymmetry
d. moral hazard; asymmetric information
e. unfair; careless
15. The pursuit of self-interest in a “commons” where everyone has access to a valuable resource will cause
a. the common good of society to be realized
b. careful conservation of the resource
c. overuse of the resource
d. individuals to make sure they bear the full costs of their actions
e. a reduction in pollution levels
1. Costs and benefits that affect unsuspecting third parties are called _________negative______ and
their actions.
4. In the case of a pure public good, consumption does not ___free rider_______________, the good and
5. Groups that are organized to persuade government to take actions that serve their interests are called