Exam 4: Market Failures: Public Goods and Externalities

When producers do not have to pay the full cost of producing a product, they tend to

(Last Word) In a cap-and-trade program,

Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

A producer's minimum acceptable price for a particular unit of a good

Professor Gullible agreed to cancel the final examination if students promised to study for it anyway.The concept of moral hazard would predict that it is unlikely that students will study for the exam.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

Suppose a firm offers its workers a cafeteria plan in which it allows workers to allocate a set amount of fringe benefit money toward specific insurance.Mary, who has five kids needing braces, selects the family dental coverage.This is an example of the

Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water) can safely absorb, establish "rights" to this limited amount of pollution, and sell those limited amount of rights to firms.The firms can then buy and sell these rights among themselves later.This approach is known as the

Insurance policies typically stipulate a deductible amount which the insured must shoulder; this is to address the problem of

In a well-functioning cap-and-trade system for pollution rights, society benefits because pollution will be brought down to insignificant levels.

A competitive market produces the economically efficient outcome if the following conditions are met, except

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river.As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment.If the government intervenes and corrects the externality in the situation described above, we would expect

The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others.If Transcontinental does not pay for the damage it causes, what has occurred?

eBay and Amazon provide "sellers' ratings" information based on the experiences of past buyers.This is to help resolve the adverse selection problem faced by potential buyers.

What two conditions must hold for a competitive market to produce efficient outcomes?

Credit bureaus provide credit histories to banks and insurance companies, in order to help deal with the problem of

A public good

Upon buying a car with airbags, Indy begins to drive recklessly.This is an example of the

When a producer cannot get all consumers of their product to pay for enjoying it, such as in the case of a fireworks display, then we have a demand-side market failure.