Chapter 05 – Market Failures: Public Goods and Externalities
1. Which is an example of a market failure?
2. Which of the following situations is not an example of market failure?
Chapter 05 – Market Failures: Public Goods and Externalities
3. If many people in a community get flu shots, the whole community benefits including those
that did not get flu shots. This is one illustration of
4. The difference between the maximum price a consumer is willing to pay for a product and
the actual price the consumer pays is called:
5. Charlie is willing to pay $10 for a T-shirt that is priced at $9. If Charlie buys the T-shirt,
then his consumer surplus is
Chapter 05 – Market Failures: Public Goods and Externalities
6. Jena is willing to pay $75 for a pair of shoes and Jane is willing to pay $85 for a pair of
shoes. The actual price that each has to pay for a pair of shoes is $65. What is the combined
amount of consumer surplus of Jena and Jane?
7. Consumer surplus arises in a market because:
8. If the price of a product increases:
Chapter 05 – Market Failures: Public Goods and Externalities
9. Refer to the graph above. The consumer surplus would be represented by the area:
10. Refer to the graph above. The producer surplus would be represented by the area:
Chapter 05 – Market Failures: Public Goods and Externalities
11. The difference between the actual price that a producer receives and the minimum
acceptable price a producer is willing to accept is the producer:
12. The minimum acceptable price for a product that producer Sam is willing to receive is
$15. It is $12 for producer Sue. The market price they could get for the product is $18. What
is the amount of the producer surplus for Sam and Sue combined?
13. When a competitive market achieves allocative efficiency, it means that:
Chapter 05 – Market Failures: Public Goods and Externalities
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14. Deadweight losses occur when the quantity of an output produced is:
15. When there is overproduction of a good:
Chapter 05 – Market Failures: Public Goods and Externalities
16. Refer to the above table. The producer surplus is $4 for producer:
17. Refer to the above table. What is the producer surplus for all producers A, B, C, and D?
18. Refer to the above table. If the equilibrium price increases, then the:
Chapter 05 – Market Failures: Public Goods and Externalities
19. Refer to the above graph. If the output level is Q2, then there will be:
20. Refer to the above graph. If the output level is Q1, then there are efficiency (or
deadweight) losses indicated by the area:
Chapter 05 – Market Failures: Public Goods and Externalities
21. Refer to the above graph. If the output level is Q1, then the sum of the consumer and
producer surplus is:
22. Refer to the above graph. If the output level increases from Q2 to Q3, then the:
23. What are the two characteristics that differentiate private goods from public goods?
Chapter 05 – Market Failures: Public Goods and Externalities
24. Private firms can hardly produce a public good profitably because of:
25. Among the following examples, the one that best illustrates a public good is:
26. A public good:
Chapter 05 – Market Failures: Public Goods and Externalities
27. 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:
28. Which of the following statements concerning a pure public good is false?
29. The market demand curve for a public good:
Chapter 05 – Market Failures: Public Goods and Externalities
30. Refer to the above supply and demand graph for a public good. Point c on the graph
shows where the:
31. Refer to the above supply and demand graph for a public good. If Q1 units of the public
good is produced:
Chapter 05 – Market Failures: Public Goods and Externalities
32. Refer to the above supply and demand graph for a public good. Which line segment would
indicate the amount by which the marginal benefit of this public good is greater than the
marginal cost?
Answer the next question(s) on the basis of the following information is for public good. Pa
and Pb represent the prices that citizens (a) and (b), the only two people in this nation, are
willing to pay for additional units of a quantity (Qc) of the public good. Qs represents the
quantity of the public good supplied by government at each of the collective prices.
33. Refer to the above information. The collective willingness of this nation to pay for the
fourth unit of the public good is:
Chapter 05 – Market Failures: Public Goods and Externalities
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34. Refer to the above information. If only 1 unit of this public good is produced, then the
marginal benefit is:
35. Refer to the above information. In equilibrium, the marginal benefit and cost of the public
good will be:
Normal University has found it necessary to institute a crime-control program on its campus
to deal with the high costs of theft and vandalism. The university is now considering several
alternative levels of crime control. This table shows the expected annual costs and benefits of
these alternatives.
Chapter 05 – Market Failures: Public Goods and Externalities
36. Refer to the above information. The marginal benefits of crime control for Level Two
are:
37. Refer to the above information. If Normal University undertakes program Level Three:
38. Refer to the above information. Based on cost-benefit analysis, Normal University should
undertake Level:
Chapter 05 – Market Failures: Public Goods and Externalities
Assume that a government is considering a new social program and may choose to include in
this program any number of four progressively larger projects. The marginal cost and the
marginal benefits of each of the four projects are given in the table.
39. Refer to the above table and information. What project should the government select to
achieve the maximum net benefit?
40. Refer to the above table and information. What is the total cost and total benefit of doing
projects A, B, and C?
Chapter 05 – Market Failures: Public Goods and Externalities
41. Refer to the above table and information. What is the net benefit of project D?
A government is considering undertaking one or more construction projects. The estimated
marginal costs and benefits of each project are given in the table.
42. Refer to the above table and information. What is the total amount that the government
should spend on construction projects?
Chapter 05 – Market Failures: Public Goods and Externalities
43. Refer to the above table and information. What is the total cost and total benefit of
projects 1, 2, and 3?
44. Refer to the above table and information. What is the net benefit of project 2?
45. Which is an example of a negative externality?
Chapter 05 – Market Failures: Public Goods and Externalities
46. In a free-market economy, a product which entails a positive externality will be:
47. External benefits in consumption refer to benefits accruing to:
48. If some activity creates external benefits as well as private benefits, then economic theory
suggests that the activity ought to be:
Chapter 05 – Market Failures: Public Goods and Externalities
49. If a good that generates negative externalities were priced to take into account these
negative externalities, then its:
50. In a market where negative externalities are associated with consumption and production,
the equilibrium will not be efficient because:
51. If there are external benefits associated with the consumption of a good or service: