Assessment for Learning - MCQs

What is a market failure?

• When everyone gets what they want

• When the market is closed

• When the market harms others or is inefficient

• When prices go up

Who usually pays for an external cost?

• The buyer

• The seller

• Someone who didn't choose to

• The government

Which of these is an example of an external cost?

• A company paying its workers

• A person buying groceries

• A factory polluting a river

• A customer buying a car

Private cost refers to:

• Cost to the environment

• Cost paid by the government

• Cost paid by people not involved in the activity

• Cost paid directly by a producer or consumer

Social cost includes:

• Only private cost

• Only environmental cost

• Private cost plus external cost

• Cost paid by the government only

Which of the following is most likely to cause a negative externality?

• Planting trees

• Driving a car that emits pollution

• Buying local food

• Recycling plastic

Which policy can help correct market failure?

• Ignoring the issue

• Increasing production

• Government regulation or taxation

• Lowering prices

An externality occurs when:

• All costs are paid by the buyer

• An activity affects only the seller

• Third parties are affected by a transaction

• The market is perfectly efficient

Why can ignoring external costs be a problem?

• It reduces demand

• It leads to unemployment

• It causes overproduction and harm to others

• It increases savings

A market is efficient when:

• Resources are wasted

• All costs and benefits are considered

• Only sellers benefit

• There are many externalities