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Chapter 31—Market Failure.doc

Chapter 31—Market Failure.doc - Chapter 31Market Failure...

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Chapter 31—Market Failure: Externalities, Public Goods, and Asymmetric Information MULTIPLE CHOICE 1. Market failure is a situation in which 2. Sometimes, when goods are produced and consumed, side effects are felt by people who are not directly involved in the market exchanges. In general, these side effects are called 3. A side effect of an action that adversely affects the well-being of others is called a 4. A negative externality is 5. Negative externalities that arise from the production of a good 6. Which of the following situations probably would not yield a negative externality? 7. When negative externalities are connected with the production of a good, 8. In which of the following situations would a negative externality most likely be involved? 9. When a negative externality exists, 10. A consequence of a negative externality is that social costs _____________________________ private costs, and the socially optimal level of output ___________________________. 11. Suppose the production of a good results in negative externalities. If all costs are taken into account, then 12. Suppose the production of a good results in negative externalities. If all costs are taken into account, then
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13. Suppose the production of a good results in negative externalities. If society produces the output consistent with the intersection of the demand curve and the marginal private cost curve, then 14. 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 15. If society is experiencing a net social cost from the production of a good, this implies that Exhibit 31-1 16. Refer to Exhibit 31-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why? 17. Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, then what is Q 1 ? 18. Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the triangle ABC is representative of
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19. Refer to Exhibit 31-l. If the exhibit represents a negative externality situation, the benefit of expanding output from Q 2 to Q 1 is the area of 20. Refer to Exhibit 31-l. If the exhibit represents a negative externality situation, the private cost of expanding output from Q 2 to Q 1 is the area of 21. Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the social cost of expanding output from Q 2 to Q 1 is the area of 22. Refer to Exhibit 31-1. If the exhibit represents a negative externality situation, the net social cost of expanding output from Q 2 to Q 1 is the area of 23. When negative externalities are involved, the market is said to 24. Given a positive externality, the marginal private benefit curve lies to the _____________ of the demand curve, with the market output _____________ the socially optimal output.
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