Economics Quiz

Market failure occurs when

• Private cost is different from social cost
  

• The government raises taxes
  

• The price of a good is equal to the marginal cost
  

• None of the above

  
  

Public goods are those for which

• individuals who do not pay can be excluded from consuming the good.

• individuals who do not pay cannot be excluded from consuming the good.

• external costs exist.

• no external costs exist.

Freeriding

• is possible if the consumption of a good is characterized by excludability.

• is possible if the consumption of a good is characterized by non excludability.

• is characteristic of private goods.

• occurs when consumers pay too much for services provided by government

Consider the market for hot dogs. As long as the marginal benefit of consuming hot dogs is greater than the price of hot dogs,

• People receive consumer surplus from eating hot dogs.

• The price of hot dogs will rise.

• The value of hot dogs will rise.

• There is no decreasing marginal benefit of eating hot dog

The marginal private cost of a chemical is $80 per ton and its marginal external cost is $10 per ton. What is the marginal social cost of the chemical?

• $70 per ton

• $85 per ton

• $90 per ton

• $45 per ton

In the case of producing a good with a negative externality, a firm will be likely to consider only the ________ marginal costs of production, leading to the production of ________.

• External; more output than is socially optimal

• Private; more output than is socially optimal

• Private; less output than is socially optimal

• External; less output than is socially optimal

When consumption of a good is non rival and non excludable, the good is a

• Public good

• Private good

• Mixed good

• Service

When positive externalities exist, the private market equilibrium represents a:

• Market price which is too high and a market quantity which is too high.

• Market price which is too low and a market quantity which is too low.

• Market price which is too high and a market quantity which is too low.

• Market price which is too low and a market quantity which is too high.

Which of the following is the BEST example of a public good?

• A can of water

• Fish in the ocean

• Cable television

• National defense

When the production of a good generates an externality, perfect competition is

• Efficient, if the externality is a negative one

• Efficient, if the externality is a positive one

• Inefficient, because in equilibrium price does not equal marginal private cost

• Inefficient, because in equilibrium price does not equal marginal social cost