Question

1. when one firms decision strongly affects its rivals, the market is most likely

a. monopolistic competition
b. an oligopoly
c. perfect competition
d. a command system
e. a monopoly

1. a market failure occurs when

a. buyers and sellers disagree on prices
b. supply equals demand
c. markets do not allocate resources efficiently
d. production costs are zero
e. all firms make profits

1. a negative externality occurs when

a. a cost of production affects people outside the market
b. buyers get extra benefits
c. prices are higher than average
d. goods are underproduced
e. competition is perfect

1. a positive externality occurs when

a. pollution increases
b. profits are high
c. third parties receive unintended benefits
d. consumers are overcharged
e. costs spill over to others

1. which of the following is an example of a positive externality?

a. factory pollution
b. a new park that raises nearby home values
c. traffic congestion
d. noise from an airport
e. chemical waste in a river

1. goods that cause negative externalities tend to be

a. overproduced
b. underproduced
c. perfectly priced
d. elastic
e. subsidized

1. goods with positive externalities tend to be

a. overproduced
b. ignored
c. underproduced
d. monopolized
e. subsidized by buyers only

1. which of the following is nonexcludable and nonrival in consumption?

a. private tutoring
b. restaurant meal
c. cell phone service
d. street lighting
e. computer software

1. why dont private companies produce most public goods?

a. they cannot make profits due to non - payers
b. they lack capital
c. consumers refuse to pay taxes
d. government forbids it
e. firms dislike regulations

1. which government action could help correct a negative externality?

a. subsidizing polluting firms
b. imposing a pollution tax
c. eliminating competition
d. providing public goods
e. freezing prices

1. when a small change in price leads to a large change in quantity demanded, economists describe the demand as

a. perfectly inelastic
b. unit elastic
c. elastic
d. nonresponsive
e. independent

1. when the costs of production spill over to people who are not involved in buying or selling the good, this situation

is known as
a. a positive externality
b. a public good
c. a price ceiling
d. a negative externality
e. a government subsidy

Explanation:

• Question 24: In an oligopoly, there are only a few firms. So, one firm's decision (e.g., price cut, new product launch) can strongly impact rivals.
• Question 25: Market failure is when the market (free - market forces of supply and demand) does not allocate resources efficiently. For example, in case of externalities, public goods etc.
• Question 26: A negative externality is when a cost of production (e.g., pollution from a factory) affects people outside the market (not involved in the production - consumption transaction).
• Question 27: A positive externality occurs when third parties (not directly involved in a transaction) receive unintended benefits. For example, a neighbor's beautiful garden that others can enjoy.
• Question 28: A new park raising nearby home values is a positive externality. The park - home value relationship is a benefit to homeowners (third parties) from the park's existence.
• Question 29: Goods with negative externalities (e.g., polluting goods) are overproduced in a free market. Producers do not account for the external cost (e.g., environmental damage), so they produce more than the socially optimal level.
• Question 30: Goods with positive externalities (e.g., vaccinations) are underproduced. Producers do not capture the full benefit (including the external benefit to others), so they produce less than the socially optimal level.
• Question 31: Street lighting is non - excludable (you can't stop someone from using it) and non - rival (one person's use doesn't reduce its availability for others).
• Question 32: Public goods are non - excludable. So, non - payers (free - riders) can use them. Private companies, which aim for profit, can't make profits as they can't charge all users (due to free - riders).
• Question 33: Imposing a pollution tax on polluting firms (a negative externality case) can internalize the cost. Firms will reduce production to the socially optimal level.
• Question 34: Elastic demand means that a small change in price leads to a relatively large change in quantity demanded.
• Question 35: When production costs spill over to non - involved parties, it's a negative externality. For example, a factory's pollution affecting nearby residents.

Answer:

1. B. an oligopoly
2. C. markets do not allocate resources efficiently
3. A. a cost of production affects people outside the market
4. C. third parties receive unintended benefits
5. B. A new park that raises nearby home values
6. A. overproduced
7. C. underproduced
8. D. Street lighting
9. A. They cannot make profits due to non - payers
10. B. Imposing a pollution tax
11. C. elastic
12. D. a negative externality