Question 1

What is market failure?

Accepted Answer

When a market fails to allocate resources efficiently

Answer

When a market is too successful

Answer

When the government intervenes in the market

Answer

When a market is shut down

Question 2

What are externalities?

Accepted Answer

Costs or benefits of a market activity that affect a third party

Answer

Costs or benefits that affect the environment

Answer

Costs or benefits that only affect the buyer and seller

Answer

Costs or benefits that affect the government

Question 3

What is a public good?

Accepted Answer

A good that is non-excludable and non-rivalrous

Answer

A good that is excludable and rivalrous

Answer

A good that is non-excludable and rivalrous

Answer

A good that is excludable and non-rivalrous

Question 4

What is a common resource?

Accepted Answer

A resource that is non-excludable and rivalrous

Answer

A resource that is excludable and rivalrous

Answer

A resource that is excludable and non-rivalrous

Answer

A resource that is non-excludable and non-rivalrous

Question 5

What is tragedy of the commons?

Accepted Answer

When individuals overuse a common resource resulting in its depletion

Answer

When individuals do not use a common resource

Answer

When individuals use a common resource efficiently

Answer

When the government intervenes in a common resource

Question 6

What are public goods subject to?

Accepted Answer

The free rider problem

Answer

The tragedy of the commons

Answer

The price mechanism

Answer

The invisible hand

Question 7

What is the Coase theorem?

Accepted Answer

If property rights are clearly defined and transaction costs are low, bargaining will lead to efficient outcomes

Answer

If property rights and transaction costs are both present, the market will fail

Answer

If transaction costs are high, government intervention is necessary

Answer

If property rights are unclear, markets will lead to efficient outcomes

Question 8

What is a negative externality?

Accepted Answer

A cost imposed on a third party

Answer

A cost imposed on the government

Answer

A cost imposed on the seller

Answer

A cost imposed on the buyer

Question 9

What is a positive externality?

Accepted Answer

A benefit received by a third party

Answer

A benefit received by the buyer

Answer

A benefit received by the seller

Answer

A benefit received by the government

Question 10

What is the tragedy of the anti-commons?

Accepted Answer

When multiple parties have conflicting property rights that prevent the efficient use of a resource

Answer

When the government intervenes in the use of a resource

Answer

When multiple parties have equal property rights

Answer

When a resource is overused

Question 11

What is an example of a negative externality in consumption?

Accepted Answer

Secondhand smoke from a smoker that harms the health of nearby non-smokers

Answer

A smoker who enjoys smoking and experiences pleasure from it

Answer

A smoker who pays high taxes on cigarettes

Answer

A smoker who experiences health benefits from smoking

Question 12

What is an example of a positive externality in production?

Accepted Answer

Education that increases the productivity of workers and benefits the economy as a whole

Answer

Education that leads to increased taxes and government spending

Answer

Education that only benefits the individual receiving it

Answer

Education that leads to increased competition and lower profits for businesses

Question 13

What is an example of a negative externality in production?

Accepted Answer

Pollution from a factory that harms the health of nearby residents

Answer

A factory that donates a portion of its profits to charity

Answer

A factory that produces goods that are in high demand

Answer

A factory that provides jobs to the local community

Question 14

What is an example of a positive externality in consumption?

Accepted Answer

Vaccinations that not only protect the individual who receives them but also reduce the spread of disease to others

Answer

Vaccinations that are unnecessary and do not provide any benefits

Answer

Vaccinations that lead to increased healthcare costs for society

Answer

Vaccinations that only protect the individual who receives them

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