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

An insurance company requires homeowners it insures to have smoke detectors in their homes. The insurance company is trying to combat the

When a positive externality exists, the market is said to fail because it overproduces the good associated with the positive externality.

Which of the following statements is true?

If the consumption of a good by one person reduces the amount of it that can be consumed by others, the good is

Suppose the production of a good results in positive externalities. If output occurs at the intersection of the supply curve and the marginal social benefits curve, then

Suppose the optimal amount of X is 100 units and that the market provides 123 units. This situation is descriptive of

Some racing horse breeders keep a few of their foals and sell the others. Generally, they put the poorest quality foals up for sale early in the season. Buyers have limited information about the foals up for sale, but they know that the first foals from some breeders will not be good racers. Other breeders sell all their foals. Since buyers cannot know which breeders are keeping back their good foals, they are suspicious of all foals offered for sale early in the season, lowering the sale prices. Breeders who sell all their foals are therefore forced to hold back their better foals until later in the season, to get true market prices for them. The market for foals is therefore subject to the

When positive externalities are involved, the market is said to

Which of the following statements is not an example of the use of persuasion to correct (or adjust for)an externality?

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

A side effect of an action that affects the well-being of third parties is

A negative externality is

Suppose a particular production process results in a large amount of pollution and the government decides to impose a tax to correct for this externality, such that the socially optimal output will be produced. The tax will have the effect of shifting the

Exhibit 30-3 Refer to Exhibit 30-3. What is the cost to Firm B of eliminating 2 tons of pollution?

Which of the following is definitely not a nonexcludable public good?

A __________ good is one that once produced and provided to one person, provides benefits to other persons.

If private property rights were established in the oceans, there would probably be

When students arrive late to class and disrupt their classmates

Exhibit 30-1 ​ Refer to Exhibit 30-l. If the exhibit represents a negative externality situation, the private cost of expanding output from Q₂ to Q₁ is the area of

The side effect of an action that increases the well-being of others is called