Exam 4: Market Failures Caused by Externalities Asymmetric Information

Refer to the provided graph of a competitive market. If the output level is Q₁, then there are efficiency losses indicated by the area

Insurance co-pays and deductibles are methods used by insurance companies to reduce moral hazard.

If pollution coming from factories is bad, then why would the socially optimal level of pollution not be zero?

People with high opportunity costs for time won't mind sitting in traffic.

Discuss how congestion pricing works to eliminate crowded roadways.

A competitive market produces the economically efficient outcome if the following conditions are met, except

What resource problem is created by negative externalities?

Refer to the diagram. If actual production and consumption occur at Q₁,

If the production of a product or service involves external benefits, then the government can improve efficiency in the market by

As it applies to insurance, the adverse selection problem is the tendency for

Depositors do not check their banks carefully for stability anymore, because of the federal deposit insurance program. This illustrates the problem of

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

When there is allocative efficiency in a market, the buyers' maximum willingness to pay for the last unit traded is equal to the sellers' minimum acceptable price for that unit.

The franchising of fast-food restaurants would be an example of how a private business

When you enter a congested roadway,

Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.

Refer to the provided graph of a competitive market. If the output level is Q₂, then there will be

Where there are spillover (or external)benefits from having a particular product in a society, the government can make the quantity of the product approach the socially optimal level by doing the following, except

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. We can conclude that the government is correcting for

Refer to the provided supply and demand graph. S₁ and D₁ represent the current market supply and demand, respectively. S₂ and D₂ represent the socially optimal supply and demand. One way that the government could shift demand to its socially optimal level is to