Exam 4: Market Failures Caused by Externalities Asymmetric Information

When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

Suppose that the Anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. Assuming that the citizens of Anytown enjoy the lighting display, the request for donations suggests that

A positive externality or spillover benefit occurs when

By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars

Define the term efficiency loss. What is the other term for this?

The MB curves in the diagram slope downward because of the law of

Refer to the diagram. If actual production and consumption occur at Q₂,

Suppose an insurance company decided to offer divorce insurance. Based on the concept of moral hazard, economists would expect

Near an ocean beach, a high-rise building is being constructed that will block the scenic view of the ocean for the residents of a low-rise building. The Coase theorem suggests that this type of dispute between the owners of high-rise and low-rise buildings

When a competitive market achieves allocative efficiency, it implies that

Credit bureaus provide credit histories to banks and insurance companies, in order to help deal with the problem of

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₁ and S₁. If there are substantial external benefits associated with the production of Z, then

Antipollution policies can be severe in their design and implementation, resulting in

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences a

A producer's minimum acceptable price for a particular unit of a good

Define the term consumer surplus.

Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

The MC curves in the diagram slope upward because of the law of

In the provided graph, the equilibrium point in the market is where the S and D curves intersect. At equilibrium, the producer surplus would be represented by the area

When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem in banking.