Market Failures and Government Intervention Quiz

Monopoly: Single seller dominating the market, leading to higher prices and lower output.

Public good: Non-excludable and non-rivalrous goods provided by the government.

Merit good: Goods or services deemed beneficial for society, often underprovided by the market.

Common pool resource: Rivalrous but non-excludable resources prone to overuse due to lack of ownership.

Invisible hand: Concept where self-interest and competition lead to positive outcomes for society as if guided by an invisible hand.

Negative externality: Unintended side effects of economic activities imposing costs on third parties.

Tragedy of the Commons: Overuse of shared resources due to lack of ownership.

Positive externalities: Benefits from economic activities accruing to third parties, hence subsidizing encourages more of the activity.

Antitrust laws: Aim to promote fair competition and prevent monopolistic behavior.

Free rider problem: Inability to exclude non-paying individuals from benefiting from a good or service.

Perfect competition: Ideal market structure where no single buyer or seller has significant influence.

Deadweight loss: Efficiency loss in a market due to factors like taxes or monopoly pricing.

Coase Theorem: Private negotiation can lead to efficient solutions for externalities, assuming no transaction costs.

Moral hazard: Risk-taking behavior incentivized by being insured against potential losses.

Asymmetric information: Imbalance in information between parties leading to market inefficiencies like adverse selection and moral hazard.