chp. 4

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Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

The two main characteristics of a public good are:

nonrivalry and nonexcludability.

Nonrivalry and nonexcludability are the main characteristics of:

public goods.

Unlike a private good, a public good:

has benefits available to all, including nonpayers.

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

A weather warning system.

A public good:

is available to all and cannot be denied to anyone.

The market system does not produce public goods because:

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

Public goods are those for which there:

are nonrivalry and nonexcludability.

If one person’s consumption of a good does not preclude another’s consumption, the good is said to be:

nonrival in consumption.

Nonexcludability describes a condition where:

there is no effective way to keep people from using a good once it comes into being.

Which of the following statements is not true?

Public goods are only provided by government.

Because of the free-rider problem:

the market demand for a public good is nonexistent or understated.

At the optimal quantity of a public good:

marginal benefit equals marginal cost.

(Last Word) In a cap-and-trade program:

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.

(Last Word) A cap-and-trade program:

assigns a property right to polluting the atmosphere.

Because there are so many sources of carbon dioxide, making monitoring difficult and costly, many economists:

prefer a carbon tax to cap-and-trade for reducing carbon dioxide emissions.

Which of the following is an example of a market failure?

uccessful public schools provide benefits to the students who attend them, as well as to the community as a whole including those who don’t go to those public schools

Which of the following situations is not an example of market failure:

Ben cannot afford to buy a high-end Mercedes Benz luxury car

Which of the following statements about market failure is not true:

Market failure always results from some government action or policy in a market

When there is overproduction of a good:

The marginal cost of the good exceeds its marginal benefit

When the marginal benefit of an output exceeds the marginal cost:

Production of that output should be increased, in order to achieve efficiency

What are the two characteristics that differentiate private goods from public goods?

Rivalry and excludability

Private firms can hardly produce a public good profitably because of:

The free-rider problem

Among the following examples, the one that best illustrates a public good is:

The bike paths around a city or town

A public good:

Can’t be provided to one person without making it available to others as well

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called:


Which of the following statements concerning a pure public good is false?

All benefits associated with the production and use of a public good are received by the government

For the music industry, the rise of Internet file-sharing of music has:

Worsened the free-rider problem

Government can reallocate resources away from private goods towards public goods, usually through:

Taxes and government spending

From an economist’s perspective, an important consideration for policies to address global warming is:

The marginal cost and marginal benefit of the policies

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve:

A much greater marginal cost than marginal benefit

Sometimes, public goods whose benefits are less than their costs still get produced because:

The benefits accrue to politically powerful government officials and their constituents

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