Market Failure 5

When there is a divergence between the MSC and MPC for a good, what is the cause?

• There exists positive externalities where MEB > 0
• There exists negative externalities where MEC > 0
• There exists an underestimation of the cost
• The ideal unit tax amount being levied on the good
• The overconsumption of the good resulting in a much higher cost

A firm pumps polluted water from its manufacturing process into a nearby river. The government legislates that the firm needs to install a filter that fully treats the water before releasing it into the river. Which of the following is likely to happen?

• MEC will fall
• MSC falls
• MEB will fall
• MPC will fall
• MPB will rise

True of False? "A government's policy may achieve allocative efficiency without changing the private consumption or production amount of a good"

• True
• False

A government decides to make a certain vaccine free for all residents in its country. Which is the best way to explain free provision?

• MEB will rise
• MEC will rise
• MPC will fall
• MPC will become zero (a horizontal line along the x-axis)
• MPB will rise

A government imposes a quota on the production of a certain good. Select the statements which are true.

• A quota is the minimum production amount the firm needs to produce, represented as a vertical line at the minimum quantity
• A quota is the maximum production amount the firm can legally produce, represented as a vertical line at the maximum quantity
• A ban is a quota set at 0
• At the set quota, even though MPB > MPC and firms would like to increase output to increase profits, it is illegal and therefore they cannot do so