Exam 48: Market Failures, Government Failures, and Rent Seeking

A market failure occurs when the market outcome is not the socially efficient outcome.

Which of the following is not a problem with a public good?

The government should subsidize the production of goods which generate a positive externality.

The free-rider problem occurs because:

Private costs exceed social cost when external benefits are created.

Why does network externality arise?

When a particular resource is commonly used, it tends to get underutilized.

When each additional resource adds increasing amounts of additional output, it refers to a situation of:

When a divergence between social costs and private costs exists, then:

The following table shows the costs and benefit of producing a commodity. Table 13.1 According to Table 13.1, at the social equilibrium:

When the government imposes a tax on production of a commodity:

When negative externalities exist in production:

Suppose the wheat industry is in long-run equilibrium, so that farmers are earning a normal rate of return.Suppose the farmers are able to convince the Congress to provide a minimum price for wheat that is above the equilibrium price.The result would be:

In the case of automobile and medical insurance, adverse selection might mean that, as the cost of insurance rises, the good drivers and healthy people reduce their coverage while the poor drivers and unhealthy people maintain their coverage.

If a gas station selling gasoline is asked to incorporate the pollution costs, its supply curve will shift to the right.

The Clean Air Act of 1972 required some companies to install the "best available" pollution control technologies.This was an example of:

If education has positive externalities:

A good that is both excludable and rivalrous is a(n):

Why do externalities arise?

A person who takes less care of his health after obtaining a health insurance is creating a negative externality.