#1
Which of the following is an example of a market failure?
Negative externality
ExplanationMarket failure occurs when the cost of a negative externality, such as pollution, is not borne by the parties involved in the economic transaction.
#2
What does government intervention aim to do in the case of market failures?
Correct inefficiencies
ExplanationGovernment intervention seeks to address market inefficiencies by implementing policies or regulations that align with societal goals.
#3
What is market equilibrium?
A state where quantity demanded equals quantity supplied
ExplanationMarket equilibrium represents a balanced state where supply and demand are in equilibrium, minimizing market failures.
#4
Which of the following is a common reason for market failure?
Monopolies
ExplanationMonopolies, by reducing competition, can lead to market failures by limiting consumer choice and potentially exploiting market power.
#5
Which of the following is NOT a reason for market failure?
Perfect competition
ExplanationPerfect competition, characterized by many buyers and sellers, is an ideal market scenario without inherent failures.
#6
What is an example of a positive externality?
Education
ExplanationPositive externality, like education, benefits society beyond the immediate parties involved, enhancing overall well-being.
#7
What is the tragedy of the commons?
A situation where common resources are overused or depleted
ExplanationThe tragedy of the commons refers to the overexploitation of shared resources due to individuals' self-interest, highlighting a market failure.
#8
Which of the following is NOT a type of market failure?
Perfect competition
ExplanationPerfect competition is a theoretical model without inherent market failures, as it assumes ideal conditions.
#9
What is the main goal of antitrust laws?
To prevent market failures
ExplanationAntitrust laws aim to promote competition and prevent monopolies, contributing to market efficiency and preventing failures.
#10
Which of the following is NOT a characteristic of public goods?
Excludability
ExplanationPublic goods lack excludability, meaning individuals cannot be excluded from their benefits, contributing to market failures without government intervention.
#11
Which policy tool can the government use to address negative externalities?
Taxes
ExplanationTaxes on activities causing negative externalities can internalize costs, encouraging responsible behavior and mitigating market failures.
#12
Which of the following is NOT an example of a public good?
Private healthcare
ExplanationPublic goods, unlike private healthcare, exhibit non-excludability and non-rivalry, making them prone to market failures without government intervention.
#13
What is the Coase theorem?
A theorem about externalities and property rights
ExplanationThe Coase theorem addresses externality problems, emphasizing the role of property rights and negotiation in achieving efficient outcomes.
#14
What is the tragedy of the anti-commons?
A situation where common resources are underused or unused due to excessive regulation
ExplanationThe tragedy of the anti-commons refers to underutilization of resources due to excessive regulation, representing a distinct form of market failure.
#15
What is the primary concern addressed by environmental regulations?
Addressing negative externalities related to pollution
ExplanationEnvironmental regulations aim to correct market failures by addressing negative externalities, particularly pollution, to promote sustainable practices.
#16
Which of the following is a potential drawback of government intervention in markets?
Distortion of resource allocation
ExplanationGovernment intervention may lead to resource misallocation, distorting market mechanisms and potentially creating inefficiencies.