Question Bank ''Market Failure'' with interactive revision questions on a variety of economics topics.

Question Bank - Economics

Market Failure

Q1. If a market generates a side effect or externality, then free market solutions (Select one answer) (a) maximize producer surplus. (b) are efficient. (c) are inefficient. (d) are equitable.

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Q2. A public good is both rival and excludable. (Select one answer) (a) True (b) False

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Q3. A private good is (Select one answer) (a) rival but not excludable. (b) not rival but excludable. (c) both rival and excludable. (d) neither rival nor excludable.

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Q4. A positive externality affects market efficiency in a manner similar to a (Select one answer) (a) rival good. (b) public good. (c) private good. (d) common resource.

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Q5. Which of the following is an example of a public good? (Select one answer) (a) hot dogs at a picnic (b) whales in the ocean (c) national defence (d) apples on a tree in a public park

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Q6. Public goods are related to positive externalities because the potential buyers of public goods ignore the external benefits those goods provide to other consumers when they make their decision about whether to purchase public goods. (Select one answer) (a) True (b) False

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Q7. If one person's consumption of a good diminishes other people's use of the good, the good is said to be (Select one answer) (a) rival. (b) a good produced by a natural monopoly. (c) a common resource. (d) excludable.

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Q8. A free rider is a person who (Select one answer) (a) receives the benefit of a good but avoids paying for it. (b) pays for a good but fails to receive any benefit from the good. (c) fails to produce goods but is allowed to consume goods. (d) produces a good but fails to receive payment for the good.

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Q9. A negative externality affects market efficiency in a manner similar to (Select one answer) (a) an excludable good. (b) a private good. (c) a common resource. (d) a public good.

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Q10. When markets fail to allocate resources efficiently, the ultimate source of the problem is usually (Select one answer) (a) government regulation. (b) that prices are not low enough so firms overproduce. (c) that prices are not high enough so people overconsume. (d) that property rights have not been well established.

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Q11. The government should continue to spend to improve the safety of our roads until there are no deaths from car accidents. (Select one answer) (a) True. (b) False.

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