Chapter 5

Question 1

What is a market failure?

Answer 1

the allocation of goods and services is not efficent

Question 2

3 associations of market failures

Answer 2

1. noncompetitive market
2. externalities and public goods
3. principal-agent problems

Question 3

Demand side market failure

Answer 3

demand curves do not reflect consumers’ full willingness to pay for a good

Question 4

Supply side failure

Answer 4

supply curves do not reflect full cost of producing a good or service

Question 5

Productive efficiency

Answer 5

A particular good is made in the least expensive way, making more resources available

Question 6

Allocative efficiency

Answer 6

goods and services most valued by society are produced

Question 7

Negative externalities result in _________ of resources to the production of the good in question

Answer 7

over allocation

Question 8

Positive externalities result in __________of resources to the production of the good in question

Answer 8

under allocation

Question 9

production of consumption costs inflicted on a third party without compensation are_________

Answer 9

negative externalities

Question 10

characteristics of private goods

Answer 10

excludability and rivalry

Question 11

when one person buys and consumes a product, it becomes unavailable for someone else

Answer 11

rivalry

Question 12

sellers can keep people who don’t buy their goods from obtaining their benefits

Answer 12

excludability

Question 13

characteristics of public goods

Answer 13

non-excludable and non- rivalry

Question 14

free riding __________ demand

Answer 14

reduces