Lesson 9

Question 1

______ occur when goods and services by a market become inefficient or no longer bring in economic efficiency.

Answer 1

Market failures

Question 2

____________ give an important economic case since markets may not always allocate scarce resources in the most efficient manner to provide maximum social welfare.

Answer 2

Market failures

Question 3

Most often, they occur because of the inefficient allocation of goods and
services.

Answer 3

Market Failures

Question 4

In the principal-agent problem, a “______” hires another person which is the “_____”, in the form of a marketing or sales manager, to do task on the principal’s behalf

Answer 4

principal
agent

Question 5

________ occurs when consumers and producers are not fully aware of the costs and benefits of their decisions. This makes their decisions to be based on incomplete or ________.

Answer 5

Information failure
imperfect information

Question 6

_______ happens this way. The other side of the party does not know what information the other party may be hiding or keeping, thus the information is not parallel which makes the information asymmetric.

Answer 6

Asymmetric information

Question 7

______ are spill-over effects from the production and consumption of goods and services without properly compensating those affected by the outcome.

Answer 7

Externalities

Question 8

Market failures arise from ______

Answer 8

negative externalities.

Question 9

A good with ________brings higher cost to the society than the cost consumers pay for it.

Answer 9

negative externalities

Question 10

When costs and benefits affect the private individuals-this means the _______ are solely burdened by the individuals, and the _______ only accrue to him or her- these costs are referred to as private costs and private benefits.

Answer 10

costs
benefits

Question 11

This occurs when the party with superior information alters his or her own behavior to gain benefits for himself or herself while imposing costs with inferior information.

Answer 11

Moral Hazard

Question 12

when a good has a negative externality, the cost to society is _____ than the cost a consumer As marginal benefit.

Answer 12

greater

Question 13

Externalities caused by ______ increases
the social costs of production beyond the private costs shouldered by the factory or the company emitting pollutants.

Answer 13

pollution

Question 14

______ is earned when producers will make more than just the economic cost of their production

Answer 14

Producer surplus

Question 15

_____ is the market where transactions are made between a buyer and seller, there is the common expectation that they will mutually benefit from that transaction.

Answer 15

Deadweight Loss

Question 16

This means that the buyers will receive consumer surplus and the sellers will gain producer surplus.

Answer 16

Deadweight Loss

Question 17

_____ is the difference between how much the consumer is willing to pay and the price of the product.

Answer 17

Consumer surplus

Question 18

_____, is equal to the actual sale price of the good less the economic cost of production.

Answer 18

Producer surplus

Question 19

______ is earned when producers will make more than just the economic cost of their production.

Answer 19

Producer surplus

Question 20

_______represents the value of transactions that could have been made, but are not actually made.

Answer 20

Deadweight loss

Question 21

______ can come from price controls, monopoly, and externalities.

Answer 21

Deadweight loss

Question 22

One way to correct for the problem of negative externality is through _______.

Answer 22

taxation

Question 23

_____ the producer the amount of negative externality will increase the marginal cost of the producer, which can make them reduce their output.

Answer 23

Taxing

Question 24

____ lowers the value of transactions to buyers
and sellers.

Answer 24

Tax

Question 25

________ are simply the benefits, instead of harm, derived by third parties who are not directly involved in an economic transaction

Answer 25

Positive externalities

Question 26

These are goods and services which the government can subsidize or provide for free such that its consumption will not basically demand or hinge on the consumers ability to pay for the good and service.

Answer 26

Merit Goods

Question 27

Downside of positive externality is thath the benefeciaries become “____”

Answer 27

free riders

Question 28

______are goods that can be consumed by everybody in a society or nobody at all They out free of charge as there is no marginal cost in producing a _______.

Answer 28

Public goods

Question 29

_____ are goods that are distributed not by the means of the price system since its provision does not rest on the ability of consumers to pay but based on the ____need. _____, on the other hand, are goods where consumption does not reduce the quantity consumed by the existing consumers.

Answer 29

Merit goods
Public goods

Question 30

This means Individuals who do not pay cannot be excluded from the benefits of the good or service

Answer 30

Non-excludable

Question 31

Non-rival happens when one individual’s consumption of a good does not affect another person’s opportunity to consume the good.

Answer 31

Non-rival

Question 32

_______ may seek to correct the distortions created by market failure and improve market operations to attain efficiency.

Answer 32

Government intervention

Question 33

A ______ is a corrective tax levied on each unit of output an agent or source of externality creates.

Answer 33

Pigouvian tax

Question 34

CHAPTER CUMMARY

Answer 34

READY!!!

Question 35

_______occur when goods and services by a market become inefficient or no longer bring in economic efficiency.

Answer 35

Market failures

Question 36

In the principal agent problem, a “______” hires another person-the “____________- for a marketing or sales manager role to perform tasks

Answer 36

principal
agent”

Question 37

___________ is when the other party does not know what information the other party may be hiding or keeping, thus information is not parallel but asymmetric.

Answer 37

Asymmetric information

Question 38

_____ occurs when the party with superior information alters his own behavior to gain benefits for himself while imposing costs on inferior information.

Answer 38

Moral hazard

Question 39

_____ are spillover effects from the production and consumption of goods and services without properly compensating those affected by the outcome.

Answer 39

Externalities

Question 40

When costs and benefits affect private individuals, meaning the _____ are solely borne by them and the _____only accrue to them, these costs and benefits are referred to as ________ and ______

Answer 40

costs
benefits
private costs and private benefits.

Question 41

________ is the difference between how much the consumer is willing to pay and the price of the product.

Answer 41

Consumer surplus

Question 42

________ is the actual sale price of the good less the economic cost of production.

Answer 42

Producer surplus

Question 43

_______ are simply the benefits, instead of harm, derived by third parties who are not directly involved in an economic transaction.

Answer 43

Positive externalities

Question 44

______ are goods that can be consumed by everyone in a society or nobody
at all.

Answer 44

Public goods

Question 45

______refers to Individuals who do not pay and cannot be excluded from
the benefits of the good or service.

Answer 45

Non-excludable

Question 46

_______ is when one Individual’s consumption of a good does not affect another
person’s opportunity to consume the good.

Answer 46

Non-rival

Question 47

The government may intervene by:

1. Imposing higher taxes to correct externalities (Impose tax to entities that highly
   encourage pollution)
2. Imposing ______ __ ______
3. Introducing policies to encourage competition into markets
4. Imposing ___ _____

Answer 47

penalties to violators
price controls