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Economics: Understanding Market Failures, Externalities, and Public Goods

A quiz on economic concepts such as market failures, externalities, and public goods, focusing on their impact on society.

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    Economics: Understanding Market Failures, Externalities, and Public Goods Question 1 If some activity creates positive externalities as well as private benefits, then economic theory suggests that the activity ought to be: Answer taxed. prohibited. subsidized. left alone under the idea of laissez faire. Answer: subsidized. 5 points Question 2 Once a government has provided a public good, everyone: Answer pays the cost. can obtain the benefit. experiences positive externalities. experiences negative externalities. Answer: can obtain the benefit. 5 points Question 3 One condition for individual bargaining to occur, according to the Coase theorem, is that there must be:

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    Answer clearly defined property rights. many people affected and involved. government intervention to establish bargaining. government creation of a market for externalities. Answer: clearly defined property rights. 5 points Question 4 Consumer surplus: Answer is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept. the difference between the minimum prices producers are willing to accept for a product and the higher equilibrium price. rises as equilibrium price rises. Answer: is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price. 5 points Question 5 Suppose the government imposed a carbon tax on firms that emit pollution. Then Answer the firms' marginal cost of production would increase, and the supply curves within the market would shift to the left.

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