Market Failure: Externalities, Public Goods, and Information Problems Online Quiz Questions

A factory’s production releases pollution that harms nearby residents. Which market-failure category best describes this situation?

True or false: A good must be provided by the government to qualify as a public good.

A flu shot provides a private marginal benefit of $60 and an external benefit of $25. What is the marginal social benefit?

Which pair of characteristics defines a common resource?

Which of the following policies can directly address a negative production externality such as factory pollution? Select all that apply.

True or false: Adverse selection is a pretransaction information problem, whereas moral hazard is a posttransaction information problem.

How should a city determine the efficient quantity of a public good for two residents?

Which statements correctly describe positive externalities or appropriate responses to them? Select all that apply.

If short-run demand for gasoline is highly inelastic, what is the most likely immediate effect of a gasoline tax?

Which statements correctly explain or address the tragedy of the commons? Select all that apply.

An open-access fishery allows many fishers to catch fish. Each fisher receives a private benefit of $1,000 from another boatload, but that catch imposes $1,400 in total depletion costs on all fishers. Explain why this market is likely to overuse the resource and evaluate one or more policies that could improve the outcome.

An open-access fishery is difficult to restrict people from using, but each boatload of fish caught leaves fewer fish available for other fishers. How should this resource be classified?

A factory creates pollution that is not included in its private production costs. Which immediate effect would an appropriately designed corrective tax most directly have in this market?

Which statement best explains why a subsidy can improve efficiency for a good such as vaccination that creates benefits for people other than the buyer?

True or false: Any good provided by a government automatically qualifies as a public good.

True or false: When consumption creates a positive externality, the unregulated market generally produces less than the socially efficient quantity.

True or false: Moral hazard is a pretransaction problem in which hidden characteristics determine which participants enter the market.

A firm's marginal private cost is $31 per unit, and production imposes $7 of marginal external damage per unit. What is the marginal social cost, in dollars per unit?

A public-good project has marginal benefits of $11 and $6 for Person A and $6 and $6 for Person B on units 1 and 2, respectively. The marginal cost is $10 per unit. What is the efficient quantity?

For one unit of output, marginal social benefit is $8, marginal private cost is $34, and marginal external cost is $12. If the unit is produced, what is the resulting net social loss, in dollars?

Which statement best describes how demand and supply elasticity affect the incidence of a corrective tax?

A city operates a severe-weather warning system whose alerts can be received by nearly everyone in the area, regardless of whether they contributed to its funding. One person's receipt of an alert does not reduce anyone else's ability to receive it. How should this service be classified?

A factory's marginal private cost of producing one additional unit is $32. The unit creates $11 of marginal pollution damage for nearby residents. What is the marginal social cost of that unit?

At the efficient quantity, a factory's marginal external cost is $18 per unit. What corrective tax, in dollars per unit, would theoretically internalize this externality?

A person receives direct protection from a vaccination, and other people benefit because disease transmission becomes less likely. If individuals consider only their own direct benefit, what market outcome is most likely?

A public park improvement has the following marginal benefits: for unit 1, Person A values it at $10 and Person B at $8; for unit 2, their values are $8 and $5; for unit 3, $5 and $3; and for unit 4, $2 and $1. The marginal cost is $12 for every unit. What is the efficient quantity?

A factory's production creates noise that reduces nearby residents' quality of life. The factory does not pay the residents for this harm. What is the economics term for this cost?