Exam 4: Market Failures: Public Goods and Externalities

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

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called

If the market price of a product increases, then the total

The market system does not produce public goods because

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, we would expect

When the marginal benefit of an output exceeds the marginal cost,

According to the Coase Theorem, externality problems

The adverse selection problem is the tendency for insured drivers to drive recklessly.

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

(Consider This) According to the Coase theorem,

When the marginal benefits exceed the marginal costs of producing a product, then allocative efficiency is not achieved in the market.

Non excludability describes a condition where

Which of the following would be considered an example of adverse selection?

If the unit price of a product is P and buyers buy a given quantity Q, then sellers would collect total revenues equal to

The Coase Theorem suggests that the government does not have to be involved at all in resolving a market failure due to externalities.

New Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected total annual costs and benefits of these alternatives. If New Normal University undertakes program Level Three,

A government is considering undertaking a construction project of an increasing scale (ranging from 1, 2, 3, to 4). The estimated marginal costs and marginal benefits of each successive scale of the project are given in the table below. What is the total cost and total benefit of the scale-3 project?

If the consumer is willing to pay a price higher than the actual price of a product, then the consumer will not buy the product because the consumer surplus will be negative.

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Asymmetric information always results in adverse selection.