Topic 2

Question 1

Market Failures

Answer 1

When the market fails to produce the right amount of products

Question 2

Efficient outcomes require:

Answer 2

Deman curve to reflect full willingness to buy.
Supply curve to reflect all cost of production.

Question 3

Consumer surplus

Answer 3

The difference between what the consumer is willing to pay for a good and what they actually pay for a good.
Extra benefit if they pay less.

Question 4

Producer surplus

Answer 4

The difference in actual price a producer receives and the minimum price they would accept.
Extra benefit from receiving higher price.

Question 5

Externality

Answer 5

A cost or benefit accruing to a third party external to the market transaction.

Question 6

Externality positive

Answer 6

Too little is produce, demand-side market failures

Question 7

Externality negative

Answer 7

Too much is produce, supply-side market failures.

Question 8

Government intervention to correct negative externalities (spill over cost)

Answer 8

Direct control and Pigovian

Question 9

Government intervention to correct positive externalities (spill over benefits)

Answer 9

Subsidies and government provision

Question 10

Government role in economy Coase Theorem

Answer 10

Private sector bargaining can solve externality problems.
Government role in correcting externalities.

Question 11

Government role in economy optimal reduction of externality.

Answer 11

Officials identify the existence and cause.
Government failure may occur.

Question 12

Asymmetric information

Answer 12

Occurs when one party to a transaction has more information than the other party.

Question 13

Demand-side market failures

Answer 13

When consumers can’t be charged for products, firms refuse to produce because they can’t afford to cover cost.

Question 14

Private goods

Answer 14

Goods produced in the market by firm, offered for sell.

Question 15

Public goods

Answer 15

Goods provided by the government, offered for free.

Question 16

Cost-benefit Analysis Cost:

Answer 16

Diverting resources from private goods production this causes private goods to not be reproduced.

Question 17

Cost-benefit Analysis Benefit:

Answer 17

Government spends money on more public goods.

Question 18

Quasi-public goods

Answer 18

Could be provided through the market. The government provides positive externalities such as education, streets, and museums.

Question 19

The reallocation processes of the government:

Answer 19

Taxes individuals and businesses and uses that money on the production of public goods.

Question 20

Ineffective voting outcomes “No” vote:

Answer 20

Underproduction of a specific public good results in under allocation of resources.

Question 21

Ineffective voting outcomes “Yes” vote:

Answer 21

Overproduction of a specific public goods result in over allocation of resources.

Question 22

Public choice theory

Answer 22

The economic analysis of government decision-making, politics, and elections.

Question 23

Median-voter model

Answer 23

Suggest that the median voter is likely to determine the outcome of the election.

Question 24

Quadratic voting

Answer 24

Voters allowed to purchase and cast as many votes as desired.

Question 25

Political corruption

Answer 25

Abuse of entrusted power for personal gain.

Question 26

Two basic forms of political corruption

Answer 26

Bribe government official to get them to do their job.
Government official demands bribe to do something illegal.