Exam 4: Market Failures Caused by Externalities Asymmetric Information

eBay, Amazon, and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of

When critics of unemployment insurance claim that some of the unemployed are not exerting much effort to find jobs because of the unemployment benefits, they are referring to the moral hazard problem.

What resource problem is created by positive externalities?

Refer to the provided supply and demand graph for a product. In the graph, line S is the current supply of this product, while line S₁ is the optimal supply from the society's perspective. If government corrects this externality problem and shifts production to the socially optimal level, then the product price will be equal to

The principle that private negotiation can resolve potential externalities without resorting to government intervention is known as the Coase theorem.

The difference between the actual price that a producer receives and the minimum acceptable price the producer is willing to take is called the producer

Refer to the diagram of the market for product X. Curve Sₜ embodies all costs (including externalities), and Dₜ embodies all benefits (including externalities)associated with the production and consumption of X. Assuming the market equilibrium output is Q₁, we can conclude that the existence of external

When the production of a good generates external costs, the producing firm's supply curve will be

In the insurance business, the moral hazard problem arises when

Define negative externality, and explain how water pollution is an example.

Buyers will opt out of markets in which

From an economist's perspective, an important consideration for policies to address global warming is

Since it's not possible for governments to know the costs of pollution abatement as well as the polluters know themselves, then there is a(n)

Insurance policies typically stipulate a deductible amount which the insured must pay; this is to address the problem of

Deadweight losses occur when the quantity of an output produced is

Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q₀ and that government purposely shifts the market supply curve from S to S₁ in diagram (a)on the left and from S to S₂ in diagram (b)on the right. The shift of the supply curve from S to S₂ in diagram (b)might be caused by a per-unit

Pigovian taxes

An emission fee levied against polluting firms will tend to shift the

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the minimum acceptable total revenue that sellers would have been willing to receive is represented by the area