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Chapter5.Market failure

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14 views

Chapter5.Market failure

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3155374005
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Chapter 5.

Market failure
1. Which of the following is the best example of a negative externality?
A. An increase in the price of oil due to the imposition of environmental regulations.
B. An increase in the price of oil due to action taken by the Organization of Petroleum
Exporting Countries (OPEC).
C. A decline in oil stock prices as a result of bad management.
D. Oil leakages from drilling platforms in the Gulf of Mexico.
E. Restrictions on the importation of foreign made cars.

2. A public good
A. is a good produced by the government.
B. can be consumed by many individuals at the same time.
C. is a free good.
D. is free of charge.

3. For private goods allocated in markets,


A. prices guide the decisions of buyers and sellers and these decisions lead to an efficient
allocation of resources
B. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient
allocation of resources
C. the government guides the decisions of buyers and sellers and these decisions lead to an
efficient allocation of resources
D. the government guides the decisions of buyers and sellers and these decisions lead to an
inefficient allocation of resources
E. sometimes prices guide the decisions of buyers and sellers, and sometimes the government
guides; both decisions lead to an efficient allocation of resources.

4. National defense __________ an example of a public good. When one person enjoys the
benefits of national defense, he __________ prevent other people from using it. We call this
__________ in consumption.
A. is...cannot...nonexcludable
B. is…can...nonrival
C. is not...can...nonrival
D. is not...cannot...nonexcludable

5. Many people in Hong Kong are vaccinated to prevent influenza infection. The rest who are not
vaccinated are free riders because they __________ from the flu control and they __________.
A. enjoy benefits...must pay for it.
B. do not enjoy benefits... must pay for it.
C. enjoy benefits...need not pay for it.
D. do not enjoy benefits… need not pay for it.

6. When a goods is rival in consumption,


A. one person's use of the goods diminishes another person's ability to use it.
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B. people can be prevented from using the goods.
C. no more than one person can use the goods at the same time.
D. everyone will be excluded from obtaining the goods.
E. All of the above are wrong.

6. Goods that are rival in consumption and excludable would be considered as


A. Natural monopolies.
B. Common resources.
C. Public goods
D. Private goods.
E. Normal goods.

8. Which of the following is not a public goods?


A. National defense.
B. Patented technological knowledge.
C. General knowledge.
D. The elimination of poverty.
E. Uncontested non toll roads.

9. Private markets usually fail to provide lighthouses because


A. lighthouses cost too much to build relative to their benefits.
B. government intervention makes it hard for private lighthouse owners to compete in the
market.
C. ship captains have incentives to use lighthouses without paying.
D. lighthouses are valued very little by ship captains these days.
E. the owner of the lighthouse is able to exclude beneficiaries from enjoying the lighthouse.

10. Reggie, Rachael, and Rudy all enjoy looking at flowers blooming in gardens in their
neighborhood. The neighborhood association is considering building a garden around the sign at
the entrance to the neighborhood. Reggie values the garden at $20, Rachael at $35, and Rudy at
§50. The flowers and labor for the garden cost $85. What should the neighborhood association
do?
A. Build the garden because people like flowers.
B. Build the garden because the benefits outweigh the costs.
C. Do not build the garden because the costs outweigh the benefits.
D. Do not build the garden in order to prevent the "tragedy of the commons" problem of overuse.
E. Do not build the garden because nobody's benefit exceeds the cost.

11. An effective price ceiling may bring all of the following results EXCEPT
A. the distribution of goods approaches equal as the poor people can afford to buy the goods at a
lower price.
B. some allocation methods other than price mechanism will appear.
C. the quality of the goods may turn poor.
D. some of the goods may be exchanged at a higher price illegally.
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12. The impact of one person's actions on the well-being of a bystander is called
A. an economic dilemma.
B. deadweight loss.
C. a multi-party problem.
D. an externality
E. market failure.

13. Which of the following happenings belong to external costs of smoking?


(1) Lung cancer caused by smoking.
(2) Lung cancer caused by secondhand smoking
(3) Air pollution caused by smoking.
(4) Satisfaction enjoyed in smoking.
A. (1) and (3) only
B. (1) and (4) only
C. (2) and (3) only
D. (1), (2), (3) and (4)

14. Dog owners do not bear the full cost of the noise their barking dogs create and often take too
few precautions to prevent their dogs from barking. Local governments address this problem by
A. making it illegal to "disturb the peace".
B. having a well-funded animal control department.
C. subsidizing local animal shelters.
D. encouraging people to adopt cats.
E. imposing a fine to dog owners if dogs bark.

15. All externalities


A. cause markets to fail to allocate resources efficiently.
B. cause equilibrium prices to be too high.
C. benefit producers at the expense of consumers.
D. cause equilibrium prices to be too low.

16. Which of the following observations involve(s) externalities created by a particular firm?
(1) Kitchen smoke is emitted from restaurants into surrounding area.
(2) Aroma of fresh bread drifts through kitchen windows of bakeries.
(3) Water mixed with poultry waste is released into nearby river by poultry farms.
A. (1) only
B. (3) only
C. (1) and (3)
D. (1), (2) and (3)

17. When goods are produced through private motivation, it is usually observed that there are
overproduction of goods __________ externalities and underproduction of goods with
__________ externalities.
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A. positive … positive
B. positive … negative
C. negative … positive
D. negative … negative

18. Which of the following government policies in Hong Kong are examples of encouraging
consumption of goods with positive externalities?
(1) Elderly vaccination subsidy scheme.
(2) Free 12-year education.
(3) Comprehensive Social Security Assistance Scheme (CSSAS).
A. (1) only
B. (2) only
C. (3) only
D. (1) and (2) only

19. If education produces positive externalities, we would expect


A. the government to tax education.
B. the government to subsidize education.
C. people to realize the benefits, which would increase the demand for education.
D. colleges to relax admission requirements.
E. the government should carry out free education for all people.

20. Through private decisions, __________ are usually over killed because their property rights
__________.
(1) fish in ocean
(2) fish in private lake
(3) animals in the wilds
(4) cattle in a farm
A. (1) and (3) only...are not well defined.
B. (1) and (3) only...belong to a private individual.
C. (2) and (4) only...are not well defined.
D. (2) and (4) only...belong to a private individual.

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