Exam 6: Market Efficiency and Market Failure

If there are significant external benefits associated with the consumption of a product, it can be said that the private benefit to the consumer understates the relative importance of this product to society. In order to move towards efficiency, what should happen to output?

If a negative externality results from the production of chemicals, an external cost is imposed on parties not directly involved in the market for the chemicals.

Cordelia is currently spending all of her income on coats and watches. If Cordelia finds that her marginal utility per dollar spent on coats exceeds her marginal utility per dollar spent on watches, what should she purchase in order to reach consumer equilibrium?

Which of the following is an example of a public good?

If a positive externality results from the consumption of higher education, what can be said of the marginal benefit students receive from education?

If the marginal utility of a good is constant, what impact will a decrease in the price have on the consumption of that good?

Inoculation against communicable diseases is an example of an activity that generates positive externalities.

Harry pays only $15 000 to purchase a new car that he would have been willing to pay as much as $25 000 for. What would an economist say about this situation?

TABLE 6-6 -Refer to Table 6-6. The table gives Lola's total utility from purchasing pairs of shoes. What is her marginal utility from the second pair?

If the production of a particular good involves significant external benefits, what might the government do to force the externality to be internalized?

As an additional consumer obtains the benefits of a public good such as national defence, what happens to the benefits to existing consumers?