EMMW TW9 Quiz

Market failure results in a misallocation of resources. In some cases, this can be corrected by the government:

restricting the manufacture of goods that generate positive externalities

providing public goods

subsidising all loss-making firms

placing a tax on merit goods

A government might tax a good that creates negative externalities in order to try to:

Increase price and consumption of the good to provide firms with extra revenue

Make the information avaliable more asymmetric

Decrease demand for the good and thus increase the consumer surplus

Decrease consumption of the good and thus reduce the triangle of welfare loss

The role of government in a market system

does not exist

is restricted to establishing property rights

includes improving situations that would otherwise result in a market failure

includes improving on situations that would otherwise result in a government failure

Government regulation may negatively affect businesses in the following ways by

Increasing input costs

Increasing profits

Lowering consumer prices

All of the above

From an economic standpoint, government intervention is justified

When the private sector is larger than public sector.

Because the government will encourage the production of private goods.

Because the government can increase the level of market power of private businesses.

When the market mechanism fails to achieve the optimal mix of output.

Which of the following statements is true about externalities?

When externalities exist, resources are allocated efficiently

When positive externalities exist, efficiency is improved by taxing the product

From society's point of view, the output of goods for which a positive externality exists is too low

The price system overproduces goods with positive externalities

__________ goods are goods that are considered __________ for consumers but which are_________ by the market. One important reason for overprovision is that the good may have __________ consumption externalities, thus the market ________ resources in its production.

Excise; desirable; underproduced; positive; overallocates

Demerit; desirable; underproduced; positive; underallocates

Normal; needs; undervalued, elastic; frees

Demerit; undesirable; overproduced; negative; overallocates