Exam 15: The Shortcomings of Free Markets

It was once common for people to have servants who helped with the cooking and cleaning.Use the cost disease of the personal services dilemma to explain why these services have declined, even though one would expect an increased use in this age of the two-worker household.

If production of a good creates beneficial externalities, a perfectly competitive market will produce

The City Symphony presents three open-air concerts in the city park pavilion during the spring and summer.Many who attend make donations for symphony expenses, but the donation is not required.Some who attend make no contributions.Economists would

Governments can deal with externalities through the use of

Imposing fines on companies that contribute heavily to air and water pollution is an attempt to bring marginal private costs in line with marginal social costs.

When beneficial externalities are present in a market, the actual output will be

Government action can usually perfectly correct the market's shortcomings.

Examples of public goods include national defense, police, and the U.S.Postal Service.

Figure 15-2 -The firm illustrated in Figure 15-2 is producing

Low interest rates will persuade corporations to invest more right now.

If both a buyer and a seller have the same information, it is said to be symmetric.

If, after careful analysis, an economist concludes that there has been a market failure, which of the following possible corrective actions might the economist favor? Why? a.prohibiting the activity b.charging fees for continuing the activity c.requiring that the public be informed of the activity d.government purchase of the item for the public

In an ideal free unregulated market

Many cities have summer pops series in which the local orchestra performs light classical music in a public park.These performances are free in some areas.Apply the concept of a public good to pops performances and explain whether an admission charge is efficient.

AZT is a drug that inhibits the reproduction of the AIDS virus, thus preventing the full development of the disease.The drug, which is sold in an unregulated market, is very expensive and many AIDS patients who can't afford it die from the disease.This case provides ammunition to critics of the market system on the basis of its

When a motorist speeds down the road at well above the posted limit, economists believe that the principle of ____ may be directing his actions.

When consumers or businessmen stop collecting information to make decisions at the point where marginal cost of data collection equals the marginal utility of the data, economists would call the decisions based on existing data

Which of the following is not generally considered a failing of market economies?

A good is most likely to be inefficiently priced if

Symmetric information generally leads to efficient allocations of resources.