Exam 5: Market Failure and Public Choice

A free-rider problem arises whenever:

Suppose a product produces substantial spillover costs.If the government adopts a policy that forces producers to bear those costs:

Figure 6-F -The over hunting of U.S.buffalo that nearly caused their extinction would be an example of the tragedy of the commons.

Figure 6-F -A cost that spills over onto individuals not directly involved in an activity is called a positive externality.

Figure 5-C -Refer to Figure 5-C.Which of the following observations is correct?

Where a free-rider problem exists, goods tend to be:

After trading in her Volkswagen Beetle for a much safer Mercedes sedan, Rene began driving less carefully.This is an example of:

Figure 6-F -If mining companies are able to shift some of their production costs onto outside parties, the actual output of mines is likely to fall short of society's ideal.

Various new cars are sold with sensors that automatically turn on the headlights at night or any low light conditions.Would these sensors create a positive externality or a negative externality? How?

In a competitive economy with no government sector:

Figure 6-F -Inoculation against communicable diseases is an example of an activity that generates positive externalities.

Which of the following is true?

The free rider problem suggests that an individual will tend to:

Price ceilings cause surpluses.

Suppose that firms in the chemical industry are allowed, free of charge, to dump harmful products into rivers.If this is the case in a competitive market, how will the price and output of the chemical products compare with their values under conditions of ideal economic efficiency?

Negative externalities are:

As an additional consumer obtains the benefits of a public good such as national defense, the benefits to existing consumers:

An externality occurs when:

Sellers may choose not to sell in certain markets because:

Which of the following may involve external benefits?