F6: Market Failures
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by Stephanie Foy
| 5 Questions
1
1
Which of the following statements does not apply to an adequately functioning market?
Buyers and sellers engage in voluntary, non-fraudulent exchange.
One firm controls production and distribution of a necessary product.
Costs and benefits of a transaction stay between the buyer and seller.
There is a lot of competition among sellers, and buyers have choices.
2
1
Which of the following best desricbes why a monopoly is considered a market failure?
Costs are borne by parties outside of the transaction.
Benefits are obtained by free riders.
The producer faces no competition, giving them market power.
Monopolists typically provide false information to consumers.
3
1
In many emergency rooms, doctors are paid based on each procedure they order. Studies have shown that in some cases, doctors ordered tests and procedures that were not warranted, causing patient bills to rise significantly. This situation would best be classified as which type of market failure?
Public Good
Negative Externality
Monopoly
Inadequate Information
4
1
Second-hand smoke could best be classified as
a public good.
a lack of competition.
a negative externality.
inadequate information.
5
1
When market failures occur, the government often steps in to regulate. For example, they may require companies to follow specific safety guidelines when disposing of dangerous waste. As a result of these regulations, producers often face higher production costs. How do regulations impact consumers?
Consumers are unaffected because producers will likely bear all costs.
Consumers may get safer products and conditions, but they will likely cost more.
Consumers have a false sense of safety in their products.
Consumers will likely pay less for much safer goods.
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