#1
What is a market failure?
When the market fails to allocate resources efficiently
ExplanationMarket failure occurs when the market mechanism doesn't distribute resources optimally.
#2
Which economic concept is associated with the idea that individuals pursue their own self-interest, leading to overall economic benefits?
Rational self-interest
ExplanationRational self-interest posits that individuals acting in their own interest can benefit society as a whole.
#3
Which economic concept suggests that individuals make decisions based on comparing the marginal benefits and marginal costs?
Marginal analysis
ExplanationMarginal analysis asserts that decisions are made by weighing the additional benefits against the additional costs.
#4
Which of the following is an example of a positive externality?
Education benefits spilling over to the community
ExplanationPositive externality is when a third party gains unintended benefits, like community-wide educational improvements.
#5
What is the Coase Theorem primarily concerned with?
Negotiation and private solutions to externalities
ExplanationCoase Theorem focuses on private bargaining to solve externalities.
#6
What is the concept of moral hazard in the context of market failures?
When individuals take on excessive risks because they know they will be bailed out
ExplanationMoral hazard is the increased risk-taking when one is protected from consequences.
#7
In the context of externalities, what is a common solution to address negative externalities?
Taxing the production of goods with negative externalities
ExplanationTaxing addresses negative externalities by increasing the cost of production.
#8
Which market structure is most likely to lead to monopolistic behavior and externalities?
Oligopoly
ExplanationOligopoly, with a small number of firms, can result in market control and externalities.
#9
What is the concept of a Pigovian tax or subsidy used for in the context of externalities?
To discourage production of goods with negative externalities
ExplanationPigovian tax aims to discourage activities with negative externalities by increasing their cost.
#10
How does a public good differ from a private good?
Public goods are non-excludable and non-rivalrous
ExplanationPublic goods are accessible to all and not diminished by use, unlike private goods.
#11
What is the tragedy of the commons?
The depletion of shared resources due to individual self-interest
ExplanationTragedy of the commons is the overuse of communal resources driven by self-interest.
#12
What is the free rider problem in public goods?
Individuals benefit from public goods without paying for them
ExplanationFree rider problem is when people enjoy public goods without contributing.
#13
How does asymmetric information contribute to market failures?
It results in one party having more information than the other, causing inefficiencies
ExplanationAsymmetric information leads to suboptimal decisions due to unequal knowledge.
#14
What is the tragedy of the anticommons?
The underuse of resources due to excessive regulation
ExplanationTragedy of the anticommons is the failure to utilize resources due to excessive regulation.
#15
In the context of market failures, what is the concept of information asymmetry?
Some individuals possess more information than others, leading to inefficiencies
ExplanationInformation asymmetry causes market inefficiencies as some parties have more knowledge than others.