Theme 1 - Market Failure - Externalities 1
Quiz by Mark Seccombe
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- Q1
Negative externalities exist in a market for a good giving rise to a misallocation of resources. This misallocation is most likely to have resulted from
over-production of the product
too few resources devoted to producing the product
the product being over-priced
too little consumption of the product
30s1.3.2b - Q2
At current levels of output, the marginal social benefit of a good is greater than its marginal private benefit. As a result, there are likely to be
positive externalities in production
positive externalities in consumption
negative externalities in consumption
negative externalities in production
30s1.3.2a - Q3
The diagram shows the market for a good. In the absence of government intervention in this market, a misallocation of resources is likely to occur because
there will be under-consumption of the good of HJ.
the free market price will be too high.
there will be over-production of the good of HJ.
the free market output will be too high.
30s1.3.2a - Q4
Positive externalities exist when
private benefits are less than social benefits
social costs exceed private costs
production creates private benefits
private benefits are greater than private costs
30s1.3.2a - Q5
If the firm is producing OE, there is likely to be
a negative externality in consumption
excess demand for the good
a misallocation of resources
a demerit good
30s1.3.2a - Q6
Market failure arises when
positive externalities exist in consumption
costs increase as firms expand production
prices rise in response to excess demand
firms make zero profits
30s1.3.2a - Q7
Positive externality goods are likely to be under-provided in a free market economy because their
social benefits exceed their social costs
private benefits exceed their social benefits
private costs exceed their private benefits
social benefits exceed their private benefits
30s1.3.2a - Q8
Government intervention in a free market economy is most likely to improve the allocation of resources if
the price of a product has been increased as a result of an increase in production costs
the market is under-supplying a product that produces a positive externality
firms cut back on production in response to a fall in demand.
a shortage has led to a rise in the price of a product
30s1.3.2a - Q9
In the absence of government intervention in this market, a misallocation of resources is likely to occur because
there will be underproduction of the good equivalent to the distance OU
there is a missing market for the good
there will be overproduction of the good equivalent to the distance UV
the market price will be too high
30s1.3.2b - Q10
Which of the policies should be adopted to maximise economic welfare of the community?
New roads
New schools
New airport
New hospitals
30s1.3.1 - Q11
Which one of the following statements about a positive externality good is true?
It is always provided free to consumers
It may be provided by the free market but not in sufficient quantities.
It tends to be provided by the government because it is non-excludable
Once the good has been supplied to one consumer, there is no extra cost in supplying it to others
30s1.3.2a - Q12
At current levels of output, the MSC>MPC. Also, MSB>MPB. As a result, there will probably be
negative externalities in consumption.
positive externalities in production.
economies of scale.
a misallocation of resources.
30s1.3.1
