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Chapter 05 - Market Failures: Public Goods and Externalities
1. Market failure is said to occur whenever:
2. Which of the following is an example of market failure?
Chapter 05 - Market Failures: Public Goods and Externalities
3. Demand-side market failures occur when:
4. People enjoy outdoor holiday lighting displays, and would be willing to pay to see these
displays, but can't be made to pay. Because those who put up lights are unable to charge
others to view them, they don't put up as many lights as people would like. This is an example
of a:
5. Supply-side market failures occur when:
Chapter 05 - Market Failures: Public Goods and Externalities
6. From society's perspective, in the presence of a supply-side market failure, the last unit of a
good produced typically:
7. The trains of the Transcontinental Railway Company, when shipping goods, sometimes
emit sparks that start fires along the tracks and damage the property of others. If
Transcontinental does not pay for the damage it causes, what has occurred?
Chapter 05 - Market Failures: Public Goods and Externalities
8. What two conditions must hold for a competitive market to produce efficient outcomes?
9. If the demand curve reflects consumers' full willingness to pay, and the supply curve
reflects all costs of production, then which of the following is true?
Chapter 05 - Market Failures: Public Goods and Externalities
10. Consumer surplus:
11. Producer surplus:
Chapter 05 - Market Failures: Public Goods and Externalities
12. Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42.
The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:
13. Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum
acceptable price to the seller, Tony, was $140. Amanda experiences:
14. Graphically, if the supply and demand curves are linear, consumer surplus is measured as
the triangle:
Chapter 05 - Market Failures: Public Goods and Externalities
15. Graphically, producer surplus is measured as the area:
16. A producer's minimum acceptable price for a particular unit of a good:
Chapter 05 - Market Failures: Public Goods and Externalities
17. Refer to the above diagram. Assuming equilibrium price P1, consumer surplus is
represented by areas:
Chapter 05 - Market Failures: Public Goods and Externalities
18. Refer to the above diagram. Assuming equilibrium price P1, producer surplus is
represented by areas:
19. Refer to the above diagram. The area that identifies the maximum sum of consumer
surplus and producer surplus is:
20. Refer to the above diagram. If actual production and consumption occur at Q1:
Chapter 05 - Market Failures: Public Goods and Externalities
21. Refer to the above diagram. If actual production and consumption occur at Q2:
22. Refer to the above diagram. If actual production and consumption occur at Q3:
23. Allocative efficiency occurs only at that output where:
Chapter 05 - Market Failures: Public Goods and Externalities
24. At the output level defining allocative efficiency:
25. Which of the following conditions does not need to occur for a market to achieve
allocative efficiency?
26. At the output where the combined amounts of consumer and producer surplus are largest:
Chapter 05 - Market Failures: Public Goods and Externalities
27. An efficiency loss (or deadweight loss):
28. An efficiency loss (or deadweight loss) declines in size when a unit of output is produced
for which:
29. The two main characteristics of a public good are:
Chapter 05 - Market Failures: Public Goods and Externalities
30. Nonrivalry and nonexcludability are the main characteristics of:
31. Unlike a private good, a public good:
32. Which of the following is an example of a public good?
Chapter 05 - Market Failures: Public Goods and Externalities
33. A public good:
34. The market system does not produce public goods because:
35. Public goods are those for which there:
Chapter 05 - Market Failures: Public Goods and Externalities
36. If one person's consumption of a good does not preclude another's consumption, the good
is said to be:
37. Nonexcludability describes a condition where:
38. Which of the following statements is not true?
Chapter 05 - Market Failures: Public Goods and Externalities
39. Because of the free-rider problem:
40. At the optimal quantity of a public good:
Chapter 05 - Market Failures: Public Goods and Externalities
41. Refer to the above data. The collective willingness of this society to pay for the 2nd unit of
this public good is:
42. Refer to the above data. If the marginal cost of producing this good at the optimal quantity
is $4, the optimal quantity must be:
43. Refer to the above data. Suppose government has already produced 4 units of this public
good. The amount individual B is willing voluntarily to pay for the 4th unit is:
Chapter 05 - Market Failures: Public Goods and Externalities
44. Refer to the above data. If this good were a private good instead of a public one, the total
quantity demanded at a $3 market price would be:
45. A demand curve for a public good is determined by:
46. Suppose that Mick and Cher are the only two members of society and are willing to pay
$10 and $8, respectively, for the 3rd unit of a public good. Also, assume that the marginal cost
of the 3rd unit is $17. We can conclude that:
Chapter 05 - Market Failures: Public Goods and Externalities
47. Alex, Kara, and Susie are the only three people in a community and Alex is willing to pay
$20 for the 5th unit of a public good; Kara, $15, and Susie, $25. Government should produce
the 5th unit of the public good if the marginal cost is less than or equal to:
48. For which one of the following goods would we need to sum individual demand curves
vertically to obtain the total demand curve?
Chapter 05 - Market Failures: Public Goods and Externalities
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