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Unformatted text preview: A moral hazard exists when one party E. can take an unobservable post transaction action A negative externality is created in an economic transaction when the transaction D. imposes a cost on a third party A market failure exists in any economic transaction in which: D. the market fails to optimize economic value An asymmetric information situation exists when: A. when one person knows a bout the quality of a good than the other party in a market transaction When firms have market power they may create a market failure by: D. influencing market price Which of the following provides the best example of a negative externality? D. the intense use of fertilizer on golf a course results in chemicals running off into a nearby river An asymmetric information situation exists when: A. when one person knows a bout the quality of a good than the other party in a market transaction All of the following may create a market failure except: D. perfectly competitive markets We get maximum economic value from a market when the price and quantity are arrived at such that which of the following conditions holds true: B. marginal social benefit equals marginal social cost A moral hazard exists when one party A. can take an unobserveable post transaction action When firms have market power they may create a market failure by: D. influencing market price Society is likely to over-allocate resources to produce and therefore overproduce goods that D. generate negative externalities. Which of the following often involves positive external benefits? D. inoculation programs Suppose that the XYZ industry produces a product that results in negative external costs to society. This information suggests that A. resources are over-allocated to the industry. An externality exists when B. some of the benefits or costs associated with a good are borne by third parties. An external cost, such as the cost generated by pollution, is D. a cost paid by a third party or by society at large. When the production of one good spills benefits over to third parties, the government should consider all of the following except D. taxing the production or consumption of the good. If production of an item results in negative external costs, then C. the market price is below the efficient price that reflects the external costs. A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called B. an externality. A result of a positive externality in the production of a good is that A. the price system will under-allocate resources to the production of that good or service. Suppose that the market price of good X equals the firm's cost of producing that good, but it does not reflect any costs imposed on society. Which of the following is FALSE?...
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This note was uploaded on 06/28/2011 for the course ECO 102 taught by Professor Metcalf during the Spring '11 term at Parkland.
- Spring '11