Chapter 13: Market Failure and Government Regulations

Question 1

The market is its own _____

Answer 1

guardian or regulator

Question 2

What are the three factors of Market Failure

Answer 2

Insufficient Information ( to consumers )
Externalities ( of a particular action )
Public Goods

Question 3

This factor of Market Failure limits individuals to make intelligent decisions, and therefore rely on pure luck rather than informed behavior in purchasing goods or services.

Answer 3

Insufficient Information

Question 4

The actions of an economic agent affect the welfare of a third party and not just those buyers or sellers.

Answer 4

Externalities

Question 5

Its intrinsic characteristics make it difficult to be allocated by private markets.

Answer 5

Public Goods

Question 6

When market fails to achieve an optimal allocation of resources we refer to that as a

Answer 6

Market Failure

Question 7

The foundation of the market system is built on the assumption that consumers are _____ and ______

Answer 7

Rational and Acquisitive

Question 8

Consumers’ demand is sometimes guided by “____”

Answer 8

“Word of Mouth”

Question 9

Insufficient information an be remedied by

Answer 9

Efficient Economic Reporting

Question 10

Perverse behavior can be countered by

Answer 10

Persuasive pronouncements by credible public figures

Question 11

It is an effect from one activity which has consequences for another activity but it is not reflected in market price.

Answer 11

Externality

Question 12

An Externality occurs when a decision causes cost or benefit to _______ other than the person making the decision.

Answer 12

Stockholders

Question 13

What are the two types of Externalities

Answer 13

External Diseconomies of production or consumption

External Economies of production or consumption

Question 14

These are uncompensated costs imposed by a firm or an individual on other firms or individuals based on their actions.

Answer 14

External Diseconomies of Production or Consumption

Question 15

These are uncompensated benefits conferred to firms or individuals by the action of one firm or individual.

Answer 15

External Economies of Production or Consumption

Question 16

It is a by-product in producing goods and services that we consume

Answer 16

Pollution

Question 17

He was the first economist to develop the theory of public goods

Answer 17

Paul A. Samuelson

Question 18

Paul A. Samuelson defined the term public good as

Answer 18

Collective Consumption Good

Question 19

These are commodities, the consumption of which has to be decided by society as a whole, rather than each individual.

Answer 19

Public Goods

Question 20

The three characteristics of Public Goods

Answer 20

Non-Rivalrous consumption
Non-excludable
Non-Rejectable

Question 21

The consumption of one individual will not deprive others in consuming them

Answer 21

Non-Rivalrous Consumption

Question 22

If one individual consumes them, it is impossible to restrict others to do the same

Answer 22

Non-excludable

Question 23

Individuals cannot abstain from their consumption even if they wanted to.

Answer 23

Non-Rejectable

Question 24

Examples of Public Goods (3)

Answer 24

National Defense
Public Health Services
National Weather Services

Question 25

Solutions to Market Failure

Answer 25

Establishing of Property Rights
Imposing of Taxes and subsidies
Direct Regulation

Question 26

This is a legally established title to the ownership and use of resources, goods, or services.

Answer 26

Property Right

Question 27

Costs that are used to achieve and maintain property rights

Answer 27

Transaction Costs

Question 28

The use of taxes to bring private and social costs of production into agreement is known as

Answer 28

Pigovian Taxation

Question 29

A tax levied to correct the negative externalities of a market activity.

Answer 29

Pigovian Tax

Question 30

Taxes imposed on alcohol and cigarettes

Answer 30

Sin Tax

Question 31

Is a legalistic approach that usually involves the setting of standard to be complied with by polluters.

Answer 31

Regulation

Question 32

The inability of the unregulated market activity to provide desired goods and services at competitive prices.

Answer 32

Market Failure

Question 33

Two types of market imperfections that can cause market failures.

Answer 33

Structural and Incentive Problems.

Question 34

Caused by too few buyers and sellers

Answer 34

Structural Problems

Question 35

Caused by externalities

Answer 35

Incentive Problems

Question 36

Area associated with market failure when the firm utilizing these resources act in a manner that is contrary to the best interest of society.

Answer 36

Common Property Resources.

Question 37

In this form of incentive, firms or individuals are given the prerogative to limit the use of resources such as land, plant and equipment, and other assets or the practice of profession by other firms or individuals.

Answer 37

Property Rights Regulation

Question 38

This is granted by the government to promote valuable research and development in the health sector.

Answer 38

Patent.

Question 39

Another form of incentive designed to support desired economic activity.

Answer 39

Subsidy

Question 40

Are fined by the government to minimize the destruction of our resources such as air, water, and others.

Answer 40

Tax Policy

Question 41

Three groups in the economy that are affected by the cost of regulation.

Answer 41

Firms
Resource Owners
Consumers