CHAPTER 35
Market Failures
Public Goods, Market Power, and Externalities
MULTIPLE CHOICE
378.
a. markets fail to reach equilibrium.
b. there is a shortage
c. there is a surplus.
d. market outcomes are not optimal or desirable.
379. A market failure may be due to the existence of
a. high prices.
b. perfect competition.
c. excess demand.
d. externalities
380. The two important differences between a private and a public good are
a. Private goods are subject to the exclusion principle and rival consumption; public goods
are not.
b. Private goods are subject to externalities and market failures; public goods are not.
c. Private goods are goods owned by individuals and businesses; public goods are owned by
the government.
d. Private goods are subject to the equity principle and the ability-to-pay principle; public
goods are not.
381. Which of the following is an example of an earmarked tax?
a. Income taxes used to fund various federal government programs.
b. Sales taxes used to fund state and local governments.
c. Gasoline taxes used to fund highway construction.
d. Property taxes used to fund public education.
382. -to- –
a. two ways to measure the efficiency of taxation.
b. two ways to measure the equity of taxation.
c. two ways to measure market failures.
d. two ways to analyze externalities.
383. What is one measure of tax efficiency?
a. Whether taxes are progressive or regressive.
b. Whether taxes are inexpensive to collect .
c. Whether people who receive higher benefits pay also pay higher taxes.
d. Whether taxes are sufficient to cover government expenditures.
384. Which of the following is an example of a positive externality?
a. a paper mill dumps dioxin into a river.
b. your Aunt Sue insists on smoking when riding in your car.
c. a new restaurant opens downtown and installs 3 new street lights
d. the government imposes an emission tax on large firms.
385. ?
a. explicit costs are known in advance; implicit costs arise later.
b. explicit costs require an actual outlay of money; implicit costs allow the use of credit
cards.
c. explicit costs require an actual outlay of money; implicit costs are opportunity costs.
d. explicit costs are costs paid by the firm; implicit costs are costs paid by others.
386. Why is education subsidized by governments in most industrialized nations?
a. because education is too expensive for many households to pay for without assistance.
b. because education generates positive externalities.
c. because education generates negative externalities.
d. because education is a public good.
387. What does rival consumption mean?
a. that two people cannot simultaneously consume the same good.
b. that obtaining a good is the outcome of a contest between rivals.
c. that it is not possible to prevent people from consuming a good.
d. that it is not possible to obtain all of the benefits from consuming a good.
388. A good is excludable if
a. it is privately owned.
b. it is owned by the government.
c. it cannot be consumed unless it is paid for.
d. it can be consumed even if not paid for.
APPENDIX 35.1
Further Aspects of Neoclassical Theories of Market Failure
MULTIPLE CHOICE
389. What is a free rider?
a. a person who receives benefits from public goods, but does not pay for them.
b. a person who receives benefits from private goods, but does not pay for them.
c. a person who refuses to pay income taxes.
d. a person who rides for free at an amusement park.
390. Why is national defense a public good?
a. because it provides protection for the public.
b. because it is provided by the government.
c. because it is nonexcludable and nonrival.
d. because it promotes economic prosperity in the military armaments industry.
391. says that externalities do not lead to resource misallocation as long as
a. the government steps in to ensure that those who generate the external costs also pay for
them.
b. there is a well defined system of property rights.
c. there is a perfectly competitive market.
d. that external costs are outlawed by state and local laws.
392. In opinion of Ronald Coase, pollution problems can best be resolved by
a. effective enforcement of pollution laws.
b. private bargaining between the polluters and those harmed by the pollution.
c. adaptation of human beings to higher levels of toxic waste.
d. an intervention to stop the polluters actions staged by affected parties and a skilled
professional.