Chapter 13 Self-test questions

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Which one of the following is not a source of market failure?

Common property resources correct incorrect

Missing markets correct incorrect

Rivalrous and excludable products correct incorrect

Monopoly power correct incorrect

Non-rivalrous and non-excludable products correct incorrect

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Negative externalities arise when:

Social benefits are greater than social costs correct incorrect

Social costs exceed private costs correct incorrect

Private costs exceed social costs correct incorrect

Social costs are at a minimum correct incorrect

Private costs are zero correct incorrect

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An important condition for productive efficiency is that:

The marginal cost for all the firms that produce the same homogeneous product is equal correct incorrect

The quantity of the output of the firm is produced at the lowest fixed cost correct incorrect

Both (a) and (b) correct incorrect

Firms lie within the production-possibility frontier correct incorrect

Both (a) and (d) correct incorrect

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A potential risk associated with the government enjoying a 'legal monopoly of violence' is that _________

Where institutions and laws to hold the government accountable are weak, governments can abuse this power correct incorrect

Governments can take too long to execute criminals correct incorrect

It encourages military take overs correct incorrect

The country gets plunged into many wars correct incorrect

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The following are all important functions of a government except _______

Enforce property rights correct incorrect

Determining prices of products correct incorrect

Redistribute income correct incorrect

Provide mechanism for settling contractual disputes correct incorrect

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Which of the following can be associated with a tragedy of the commons?

A hunter using sophisticated gears to hunt more animals in the wild for himself. correct incorrect

Purchasing multiple tickets to a concert for yourself correct incorrect

Visiting a public museum everyday because its free correct incorrect

None of the above correct incorrect

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The free-rider problem suggests that _______

Government cannot charge for a public good because people want it for free correct incorrect

Goods cannot be produced privately because everyone wants it free correct incorrect

Common resources could be destroyed correct incorrect

People will underestimate the value they get from non-rivalrous good to avoid having to pay for it correct incorrect

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A market failure that can emerge from asymmetric information is ____________

Missing markets correct incorrect

Coase Theorem correct incorrect

Adverse selection correct incorrect

None of the above correct incorrect

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A natural monopoly will exist in:

An industry that only one firm can operate at the minimum efficient scale due to the large size of economies of scale correct incorrect

Industries that only one firm is profitable correct incorrect

Industries that receive government support correct incorrect

None of the above correct incorrect

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Under perfect competition, innovation may be low because

New products can easily be imitated by other firms which can quickly eliminate profits correct incorrect

Firms do not invest in R&D correct incorrect

Firms do not receive state support correct incorrect

None of the above correct incorrect