Question 1

One reason for market failure is

Accepted Answer

there is underproduction of goods with positive externalities

Answer

positive externalities lead to overproduction of a good

Answer

public goods are provided free of charge to users

Answer

individual's incomes and wealth are not identical

Question 2

The social cost minus the social benefit equals

Accepted Answer

£120m

Answer

£10m

Answer

£40m

Answer

£30m

Question 3

Which one of the following is a reason for government intervention to correct a market failure?

Accepted Answer

externalities in consumption and production

Answer

diseconomies of scale

Answer

goods in composite demand

Answer

inferior goods

Question 4

At outputs above Q, there will be a misallocation of resources because

Accepted Answer

MSC>MSB

Answer

MPC<MPB

Answer

MSB<MPB

Answer

MPC>MSB

Question 5

Government provision of a merit good can be justified because

Accepted Answer

without government intervention partial market failure would result

Answer

without government intervention there would be a missing market

Answer

merit goods are non-rival and non-excludable

Answer

the provision of merit goods has an opportunity cost

Question 6

Which one of the following combinations will improve the allocation of resources compared with the market outcome at QE?

Accepted Answer

higher price, lower output

Answer

lower price, higher output

Answer

lower price, lower output

Answer

higher price, higher output

Question 7

Positive externalities exist when

Accepted Answer

private benefits are less than social benefits

Answer

social costs exceed private costs

Answer

private benefits are greater than private costs

Answer

production creates private benefits

Question 8

Market failure arises whenever firms

Accepted Answer

create externalities

Answer

reduce expenditure on research and development

Answer

make a loss

Answer

replace machines with workers

Question 9

One reason why UK governments provide education is because

Accepted Answer

the private benefit from education is less than the social benefit

Answer

education cannot be provided by the free market

Answer

this ensures that the provision of education is maximised

Answer

all education is both a merit good and a public good

Question 10

Where there is partial market failure

Accepted Answer

a market exists but there is a misallocation of resources

Answer

there is excess demand in the market at the current market price

Answer

the product is both non-excludable and non-rival in consumption

Answer

the market can only be competitive with government support

Question 11

Without government intervention, a misallocation of resources is likely to occur because

Accepted Answer

there is under-consumption of the good, of HJ

Answer

there is over-production of the good, of HJ.

Answer

the free market output is too high.

Answer

the free market price is too low

Question 12

Which one of the following statements about market failure is correct?

Accepted Answer

The social benefits of some private goods exceed the private benefits.

Answer

Small firms are less efficient than large firms due to diseconomies of scale

Answer

Markets do not supply merit goods

Answer

The existence of free riders will result in the over-production of public goods.

Question 13

The product is most likely to be

Accepted Answer

a positive externality good

Answer

an inferior good

Answer

a negative externality good

Answer

a public good

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