Exam 12: Market Failure and Government Failure

The extra benefit received by everyone in the society by the purchase of one more unit of a good is called the _____ benefit.

The marginal social benefit is the sum of marginal private benefit and marginal:

Use Figure: Negative Externality and Deadweight Loss I. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. At the free-market equilibrium, the deadweight loss resulting from the externality is: ​ Figure: Negative Externality and Deadweight Loss I

_____ refers to the situation where markets fail to allocate resources efficiently.

Use Figure: Negative Externality and Deadweight Loss I. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. Based on the graph, producing the good involves a marginal external cost of: ​ Figure: Negative Externality and Deadweight Loss I

Which of the following statements is NOT true?

If the marginal private benefit from consuming a good is $5 and the marginal social benefit from consuming the good is $7, then the consumption of the good involves a _____ externality, and the government must _____ the consumption of the good to ensure that the socially optimal amount of the good is purchased.

If Raj buys car insurance and then drives the car irresponsibly because he thinks that the insurance covers any accident, then Raj's behavior is an example of:

Use Figure: Positive Externalities and Deadweight Loss. The figure shows the marginal private benefit, marginal social benefit, and marginal private cost for a good. The socially optimal price of the good is _____, and the socially optimal quantity is_____ units. ​ Figure: Positive Externalities and Deadweight Loss

Because public goods are both nonrival and nonexcludable, it is possible for people to use these goods without having to pay for them. Enjoying the benefits of a good without paying for it is known as:

Which of the following statements is TRUE?

Which of the following actions can help eliminate the deadweight loss that results from positive externalities?

The marginal private cost of producing a good is $8, and the marginal social cost is $9. Therefore, the production of the good creates a ______ externality, and the equilibrium quantity produced will be _____ the socially optimal quantity.

If the marginal external cost of producing a good is positive, then the production of the good involves a _____ externality, and the marginal social cost curve lies _____ the marginal private cost curve.

Desirable effects that are felt by people who are uninvolved in the decisions that created those effects are known as:

It is widely known that the marginal social benefit from having a more educated population is greater than the marginal private benefit received from education. Therefore, education creates _____ externalities, and the free market leads to _____ education compared to the social optimal.

Suppose that the purchase of a good creates a positive marginal external benefit. Given this, which of the following statements is NOT true?

After a government introduces a new regulation, it must spend considerable resources to ensure compliance with that regulation. The resources spent toward ensuring the compliance is an example of _____ costs.

Use Figure: Negative Externality and Deadweight Loss I. The figure shows the marginal benefit, marginal private cost, and marginal social cost that are associated with producing a good. The free-market equilibrium price of the good is _____, and the equilibrium quantity is _____ units. ​ Figure: Negative Externality and Deadweight Loss I

If the purchase of a good creates a positive externality, then the marginal _____ benefit is greater than the marginal _____ benefit.