AP Microeconomics Market Failure

The free market outcome is determined by the intersection of _____ and ____, resulting in quantity ____ and price ____. The social optimum outcome is given by the intersection of ____ with ____, which determines quantity _____ and price ____.

• MPB; MSB; Qm; Popt; MPC; MSC; Qopt; Popt

• MPC; Popt; Qm; Pm; MSC; MSQ; Oopt, Pm

• MPB; MPC; Qm; Pm; MSB; MSC; Qopt; Popt

• MSB, MSC; Qm; Pm; MPB; MPC; Qopt; Popt

When there is a _______ production externality, the free market _________ resources to the production of the good and too ______ of it is produced relative to the social optimum. This is shown by _______and _______ at the point of production, Qm, *

• negative; misallocate; little; Qm > Qopt; MSC < MSB

• positive; underallocate; much; Qm > Qopt; MSB > MSC

• negative; overallocate; much; Qm > Qopt; MSC > MSB

• positive; misallocate; much; Qm > Qopt; MSC > MSB

In which of the following situations is market failure least likely to occur? A situation where;

• externalities exist

• many producers compete in the market

• there is a sole producer in market

• there is a very uneven distribution of income and wealth

A situation of market failure is said to exist if;

• buyers and sellers pay for the true opportunity costs of their actions

• there are no externalities

• the government provides merit goods free

• third parties in society are affected and not compensated

Example: newly purchased car Explanation: excludable - if you did not pay for it, the dealer would not give it to you rival - one person driving car keeps another person from driving it. This is an example of a _____________.

• Public Good

• Private Good

• Free Rider

• Market Failure

Private Bridge Attracts Public Interest At the council meeting last night, the Drover Company demanded that the town enforce its private property laws. Last year, the company built a bridge across Snake Stream to make it easier for employees to reach its offices. "The bridge," company owner Celia Drover said, "is private." She went on to complain that many nonemployees have been using the bridge, rather than drive seven miles south to cross the stream on a state-owned bridge. Which of the following best describes the use of the private bridge by the public?

• the efficient allocation of resources

• the free-rider problem

• positive externalities

• negative externalities

Negative externalities can be best described as

• When the consumption/production of a good or service has a negative impact on a third party

• When the consumption/production of a good or service has any impact on a third party

• When the consumption/production of a good or service has a positive impact on a third party

• When the consumption/production of a good or service depletes the access for a third party

Private Bridge Attracts Public Interest At the council meeting last night, the Drover Company demanded that the town enforce its private property laws. Last year, the company built a bridge across Snake Stream to make it easier for employees to reach its offices. "The bridge," company owner Celia Drover said, "is private." She went on to complain that many nonemployees have been using the bridge, rather than drive seven miles south to cross the stream on a state-owned bridge. Which of the following best describes the use of the private bridge by the public?

• the efficient allocation of resources

• the free-rider problem

• positive externalities

• negative externalities

Why has the United States space program been operated as a public good?

• Private enterprise does not have the technical skill needed to build the rockets that carry astronauts into space.

• The profit incentive for a private company to establish and run its own space program is too great.

• The inability of the American space program to land an astronaut on Mars is an example of market failure.

• It is impractical to exclude nonpayers from enjoying the scientific and technological benefits of the space program.

Legislation designed to limit the formation of monopolies or combinations of firms that act to restrict competition

• anti-trust law

• monopoly

• free rider

• economies of scale