Market Failure
Read the supplied powerpoint slides and attempt all quiz questions on Market Failure.
- 1.
When a market is in equilibrium with no external influences and no external effects, it is said to be in a state of _____________ optimality
- A.
Community
- B.
Pareto
- C.
Efficient
- D.
Producer
- E.
Consumer
Correct Answer
B. Pareto -
- 2.
Producer surplus + consumer surplus equals:
- A.
Social efficiency
- B.
Profit maxmization
- C.
Community surplus
- D.
Marginal social cost
- E.
Marginal social benefit
Correct Answer
C. Community surplus -
- 3.
When examining the topic of market failure, the supply curve can be referred to as the:
- A.
Marginal social benefit
- B.
Community surplus
- C.
Marginal social cost
- D.
Producer surplus
- E.
Consumer surplus
Correct Answer
C. Marginal social cost -
- 4.
The marginal social benefit is represented by the ________________.
- A.
Opportunity cost
- B.
Supply curve
- C.
Community surplus
- D.
Demand curve
- E.
All of the above
Correct Answer
D. Demand curve -
- 5.
Community surplus cannot be maximized in the real world because:
- A.
Markets are influenced by government forces.
- B.
Markets are determined by supply and demand concerns.
- C.
Profit maximization is always the goal.
- D.
There are free market economic policies in most developed countries.
- E.
Markets are not perfect.
Correct Answer
E. Markets are not perfect. -
- 6.
When community surplus is not maximised there is:
- A.
Market failure
- B.
Loss of government revenue
- C.
Loss of consumer surplus, but not producer surplus
- D.
Loss of producer surplus, but not consumer surplus
- E.
Protests from left wing political groups.
Correct Answer
A. Market failure -
- 7.
When market failure occurs governments may intervene in order to:
- A.
Restore market equilibrium
- B.
Reduce company profits, and increase producer surplus
- C.
Move towards the optimal allocation of resources
- D.
Increase consumer surplus, but not producer surplus
- E.
All of the above.
Correct Answer
C. Move towards the optimal allocation of resources -
- 8.
Which of the following is not a reason why markets fail?
- A.
Lack of Public Goods
- B.
Under Supply of Merit Goods
- C.
The existence of externalities
- D.
Perfect Competition
- E.
Imperfect Competition.
Correct Answer
D. Perfect Competition -
- 9.
Which of the following is an example of imperfect competition?
- A.
Monopolists restricting output in order to push up prices
- B.
Firms engaging in formal and tacit collusion
- C.
Price fixing using cartels
- D.
Oligopolistic market structures
- E.
All of the above.
Correct Answer
E. All of the above. -
- 10.
When are profits maximized?
- A.
When AR = MC
- B.
When MC=MR
- C.
When MR=AR
- D.
When LRAC = SRAC
- E.
When MC=MPC
Correct Answer
B. When MC=MR -
- 11.
When community surplus falls from the maximum we say that there has been a
- A.
Welfare loss
- B.
Producer loss only
- C.
Consumer loss only
- D.
Declining sales
- E.
Options, b, c & d.
Correct Answer
A. Welfare loss -
- 12.
In order to reduce or restrict market share, governments may:
- A.
Outlaw oligopoly market structures
- B.
Stop mergers or takeovers that give an individual firm more than a certain percentage of the market.
- C.
Implement anti-trust laws.
- D.
Impose additional taxes on large firms
- E.
Both options b & c.
Correct Answer
C. Implement anti-trust laws. -
- 13.
Many countries have a monopolies commission or a monopoly watchdog.In United States this is called:
- A.
The US Competition and Consumer Commission
- B.
The US Fair Trade Commission
- C.
Federal Trade Commission
- D.
The Consumer Affairs Bureau
- E.
None of the above
Correct Answer
C. Federal Trade Commission -
- 14.
Public goods are
- A.
Goods and services which are provided by the public and private sectors.
- B.
Goods and services which are are not provided by the free market.
- C.
Lacking in a free market situation. An example of market failure.
- D.
Schools, universities and libraries.
- E.
Options b & c.
Correct Answer
E. Options b & c. -
- 15.
An example of a quasi public good that could be supplied by the free market is:
- A.
National defence
- B.
Street lights
- C.
Customs and border security
- D.
Immigration services
- E.
Court system
Correct Answer
B. Street lights -
- 16.
The reasons why public goods will not be provided in a free market is that they are:
- A.
Non-excludable
- B.
Non- rivalrous
- C.
Characterized by inelastic demand
- D.
Characterized by elastic demand
- E.
Options a & b.
Correct Answer
E. Options a & b. -
- 17.
A good is said to be non-excludable if it is ____________________ to stop other peopleconsuming it once it has been provided.
- A.
Possible
- B.
Reasonable
- C.
Acceptable
- D.
Impossible
- E.
Normal
Correct Answer
D. Impossible -
- 18.
A good is non-rivalrous when:
- A.
One person consuming it does not prevent another person from consuming it as well.
- B.
One person consuming it does prevent another person from consuming it at the same time.
- C.
One person using the product or service trys to stop somebody else from using the product.
- D.
It does not suffer from the free rider problem
- E.
Options b & c.
Correct Answer
A. One person consuming it does not prevent another person from consuming it as well. -
- 19.
Most public goods are funded by:
- A.
Community donations
- B.
Taxpayers
- C.
Corporate taxes
- D.
Income taxes
- E.
Private investors
Correct Answer
B. Taxpayers -
- 20.
Merits good are characterized by:
- A.
Positive externalities.
- B.
Negative externalities
- C.
Underestimation of the benefits of the product or service
- D.
Private and government providers in most cases.
- E.
Option a, c and d.
Correct Answer
E. Option a, c and d. -
- 21.
In a pure free market, there would be under consumption and under supply of merit goods because:
- A.
Government subsidies may be reduced
- B.
People would have to pay the full cost for these services.
- C.
They are normally unpopular with consumers
- D.
All citizens would have private coverage and insurance
- E.
All of the above.
Correct Answer
B. People would have to pay the full cost for these services. -
- 22.
Example(s) of merit goods are:
- A.
Education
- B.
Health care
- C.
Sporting facilities
- D.
Public transport
- E.
All of the above
Correct Answer
E. All of the above -
- 23.
Which of the following merit goods is available at no direct cost to consumers?
- A.
Health Care in the United States
- B.
Health Care in Sweden
- C.
Public Transit in the United States
- D.
Sport Facilities in the United Kingdom.
- E.
Private Schools in Japan
Correct Answer
B. Health Care in Sweden -
- 24.
A demerit good may be characterized by:
- A.
Negative externalities.
- B.
People ignoring the risks associated with consumption.
- C.
People being unaware of the risks of using the product.
- D.
High government taxes to discourage, reduce or control use.
- E.
Options a,b,c and d.
Correct Answer
E. Options a,b,c and d. -
- 25.
Which of the following is / are examples of demerit goods:
- A.
Cigarettes
- B.
Alchohol
- C.
Hard drugs
- D.
Child pornography
- E.
Options a,b,c and d.
Correct Answer
E. Options a,b,c and d. -
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Current Version
-
Jan 17, 2013Quiz Edited by
ProProfs Editorial Team -
Aug 18, 2010Quiz Created by
Phillip27
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