Market Failure

Market failure arises whenever firms

• make a loss

• replace machines with workers

• create externalities

• reduce expenditure on research and development

Market failure results in a misallocation of resources. In some cases, this can be corrected by the government

• restricting the manufacture of goods that generate positive externalities

• Providing public goods

• subsidising all loss-making firms

• placing a tax on merit goods

A government might tax a good that creates negative externalities in order to try to:

• Increase price and consumption of the good to provide firms with extra revenue
•  Make the information avaliable more asymmetric
• Decrease demand for the good and thus increase the consumer surplus
• Decrease consumption of the good and thus reduce the triangle of welfare loss

Getting a flu shot is an example of a ________ externality

• Negative
• Neutral
• Positive

When a third party member is affected by the interaction of a buyer and seller, we call this

• An externality
• The tragedy of the commons
• consumer surplus
• total welfare

A market failure is best described as

• The idea that market forces of supply and demand always provide the maximum benefit for society
• The idea that market forces of supply and demand do not always provide the maximum benefit for society
• The concept that a decision made by one party can have negative effects on another party
• The concept that a decision made by one party can have positive effects on another party

What is the underlying mechanism which explains why a good does not become a private one?

• Tragedy of the Commons
• Negative Externalities
• Positive Externalities
• Free Rider Problem

By-products of production or consumption that impose costs on third parties are known as

• negative externalities
• rival externalities
• positive externalities
• exclusive externalities 

Which of the following can practice collusion?:

• a monopolistically-competitive firm
• a perfectly-competitive firm
• a monopoly
• an oligopoly

The role of government in a market system

• does not exist
• is restricted to establishing property rights
• includes improving situations that would otherwise result in a market failure
• includes improving on situations that would otherwise result in a government failure?