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1. Which of the following statements is not correct?
a.
An invisible hand leads buyers and sellers to an equilibrium that maximizes total surplus.
b.
Market power can cause markets to be inefficient.
c.
Externalities can cause markets to be inefficient.
d.
The invisible hand can remedy all types of market failures.
2. Inefficiency can be caused in a market by the presence of
a.
market power.
b.
externalities.
c.
imperfectly competitive markets.
d.
All of the above are correct.
3. Market power refers to the
a.
side effects that may occur in a market.
b.
government regulations imposed on the sellers in a market.
c.
ability of market participants to influence price.
d.
forces of supply and demand in determining equilibrium price.
4. Externalities are
a.
side effects passed on to a party other than the buyers and sellers in the market.
b.
side effects of government intervention in markets.
c.
external forces that cause the price of a good to be higher than it otherwise would be.
d.
external forces that help establish equilibrium price.
5. The decisions of buyers and sellers that affect people who are not participants in the market create
a.
market power.
b.
externalities.
c.
profiteering.
d.
market equilibrium.
6. Market failure is the inability of
a.
buyers to interact harmoniously with sellers in the market.
b.
a market to establish an equilibrium price.
c.
buyers to place a value on the good or service.
d.
some unregulated markets to allocate resources efficiently.
7. When markets fail, public policy can
a.
do nothing to improve the situation.
b.
potentially remedy the problem and increase economic efficiency.
c.
always remedy the problem and increase economic efficiency.
d.
in theory, remedy the problem, but in practice, public policy has proven to be ineffective.
8. The consumption of water by local residents that may include pesticide runoff from local farmers’ fields is an example
of
a.
market equilibrium.
b.
market power.
c.
externalities.
d.
laissez-faire.
9. Market power and externalities are examples of
a.
laissez-faire economics.
b.
public policy.
c.
market failure.
d.
welfare economics.
10. Which of the following is not correct?
a.
Market power can cause markets to be inefficient.
b.
When the decisions of buyers and sellers affect nonparticipants, markets may be inefficient.
c.
The tools of welfare economics cannot help economists when markets are inefficient.
d.
Externalities can cause markets to be inefficient.
