Exam 15: The Shortcomings of Free Markets

Briefly and concisely define the following concepts and terms. a.marginal social cost b.detrimental externalities c.free-rider problem d.cost disease e."defective telescopic faculty"

As wages for manufacturing workers rise, wages for service workers will stay the same.

Beneficial externalities would be removed if the recipients of the benefit paid the producer of the externality.

A commodity is ____ if it is used up when someone consumes it.

As productivity in the manufacturing sector increases, the service sector must keep pace or it will become more expensive in the long run.

Pleasure boaters enjoy the use of waterways, but sometimes run into problems and need rescue.Coast Guard boats, supported by tax revenue, are often used for rescue.Is it likely that there will be an efficient amount of boating and rescuing?

Critics argue that society is depleting its energy resources far too quickly.The most likely explanation for this behavior is that

A firm is generating detrimental externalities when

Private goods are characterized by two important attributes.What are they?

Which term refers to the share of an activity's marginal cost that is paid for by the persons who carry out the activity?

Unemployment insurance is often criticized because workers can extend the amount of time they are unemployed and thus increase the cost of the program.This phenomenon is best described as

Moral hazard

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.

Rent seeking is the term given

If the market mechanism is efficient, the marginal cost accurately measures the opportunity cost of a good or service.

Due to Pigou's "defective telescopic faculty," a market economy is inefficient in allocating resources between the present and the future.

Market economies have air and water pollution, but nonmarket economies

The opportunity cost of postponing income to some future time depends on the interest rate.

A process through which a firm seeks to obtain earnings without contributing to production, thus wasting valuable resources, is known as

Many detrimental externalities occur because