Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

Suppose the production of a good results in negative externalities. If output is at the intersection of the demand curve and the marginal social cost curve, then

Which of these goods may be considered rivalrous in consumption and nonexcludable?

Identify two activities that generate positive externalities and two activities that generate negative externalities.  Be sure to explain why each activity you identified generates the type of externality you stated.

All economists agree that to justify that market failure has occurred, it is sufficient to have the market choose an inferior product over a superior product.

When marginal private cost is less than marginal social cost,

Marginal social costs are equal to

The government's provision of nonexcludable public goods such as national defense is accepted because

A good is nonexcludable if no externalities, either negative or positive, are associated with its production or consumption.

Exhibit 30-5 ​ Refer to Exhibit 30-5.  If a positive externality exists, then the external benefits associated with the positive externality equal

Hank goes to a Korean restaurant for the first time and he has no prior knowledge of  Korean. He orders the Daenjang Chigae prepared medium hot and hopes for the best. Here an information __________ is __________ a market outcome.

If a negative externality exists, then there is a __________ when society produces the market output instead of the socially optimal output. This exists because the __________ to sellers and third parties are __________ the __________ derived by buyers.

If there is a negative externality, and the market output is 100 units more than the socially optimal output, then it follows that

Exhibit 30-5 ​ Refer to Exhibit 30-5.  If a positive externality exists, then the market ____________ output by the amount ________________.

Lemon laws __________ the __________ problem in the used car market.

A positive externality exists and government wants to apply a per-unit subsidy in order to bring about the socially optimal output. Under what condition will the solution (of the subsidy)be worse than the problem (the market failure)?

A seller has some information about a good that the buyer does not have. When would the seller be most likely to provide the buyer with the currently "hidden" information?

It is argued that the market will

When negative externalities are involved, the market is said to

Exhibit 30-3 Refer to Exhibit 30-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution in half the government issues two transferable pollution permits to each firm.  What is the total cost to society of decreasing pollution to half its present level if firm C buys one pollution permit from firm A and one pollution permit from firm B?

Exhibit 30-5 ​ Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal the distance between points __________, and the market output is __________.