This quiz works best with JavaScript enabled. Home > Finance > Economics > Market Dynamics > Market Failures > Market Failures – Quiz 1 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Market Failures Quiz 1 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. A market failure is when markets alone can't provide enough of a public good. A) False. B) True. Show Answer Correct Answer: B) True. 2. Windows 10 is an example of a A) Government Monopoly. B) Natural Monopoly. C) Geographic Monopoly. D) Technological Monopoly. Show Answer Correct Answer: D) Technological Monopoly. 3. The goal of a subsidy is to A) Decrease the production of goods and services that will benefit society. B) Increase the production of goods and services that will benefit society. C) Limit the supply of goods and services that can benefit society. D) Increase the supply of goods and services that will hurt society. Show Answer Correct Answer: B) Increase the production of goods and services that will benefit society. 4. Which of the following is not a typical solution to the "Tragedy of the Commons?" A) Turning the common resource into a private good. B) Taxing the use of the common resource. C) Turning the common resource into a club good. D) Regulating the use of the common resource. Show Answer Correct Answer: C) Turning the common resource into a club good. 5. Which type of laws promote competition by preventing or breaking up monopolies? A) Constitutional law. B) Labor laws. C) Laws protecting the environment. D) Antitrust laws. Show Answer Correct Answer: D) Antitrust laws. 6. A beekeeper who produces honey helps the apple orchard next door because the extra bees help pollinate the apple trees. This an example of A) Negative Externalities. B) Collusion. C) Vertical merging. D) Positive Externalities. Show Answer Correct Answer: D) Positive Externalities. 7. Which two market structures have relatively high barriers to entry? A) Pure competition and monopolistic competition. B) Monopolistic competition and oligopoly. C) Oligopoly and monoply. D) Monopoly and monopolistic competition. Show Answer Correct Answer: C) Oligopoly and monoply. 8. If a market is at equilibrium, then A) There is no surplus or shortage. B) There is a surplus. C) There is a shortage. D) It creates a negative externality. Show Answer Correct Answer: A) There is no surplus or shortage. 9. Which is not an example of a publicly owned industry intended to provide goods and services more efficiently to the public? A) Public transportation. B) Airline industry. C) Postal service. D) Utilities such as gas, water, electric. Show Answer Correct Answer: B) Airline industry. 10. Which market structure has a large number of buyers and sellers (the most) and products are identical? A) Monopoly. B) Oligopoly. C) Monopolistic competition. D) Perfect (pure) competition. Show Answer Correct Answer: D) Perfect (pure) competition. 11. If a good creates a negative externality, then the government would add a ..... to remedy it A) Tax (excise). B) Subsidy. C) Not interfere. D) None of above. Show Answer Correct Answer: A) Tax (excise). 12. Consider the market for plastic. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what would happen to the quantity of plastic produced in the market? A) The market would produce 300 tons less than the social optimal level. B) The market would produce 150 tons less than the social optimal level. C) The market would produce 150 tons more than the social optimal level. D) The market would produce 300 tons more than the social optimal level. Show Answer Correct Answer: C) The market would produce 150 tons more than the social optimal level. 13. Government programs designed to support disadvantaged citizens through difficult times are sometimes called a: A) Big push. B) Helping hammock. C) Public good. D) Safety net. Show Answer Correct Answer: D) Safety net. 14. American businessman based in Cleveland and founder of Standard Oil Company A) Samuel Gompers. B) Thomas Edison. C) Vanderbilt. D) John D. Rockefeller. Show Answer Correct Answer: D) John D. Rockefeller. 15. Landlords do not agree with rent control and often convert their apartments into condos. After doing so, what happens to the supply? A) It increases because more landlords build more apartments. B) It decreases because all of the affordable housing units are taken and landlords stop building new ones. C) It decreases because everyone moves in they take all of the housing. D) None of above. Show Answer Correct Answer: B) It decreases because all of the affordable housing units are taken and landlords stop building new ones. 16. A government might tax a good that creates negative externalities in order to try to: A) Decrease demand for the good and thus increase the consumer surplus. B) Increase the price and consumption of the good to provide firms with extra revenue. C) Make the information available more asymmetric. D) Decrease consumption of the good and thus reduce the triangle of welfare loss. Show Answer Correct Answer: D) Decrease consumption of the good and thus reduce the triangle of welfare loss. 17. This describes the state where everyone benefits from the public good but is not willing to take up the cost of maintaining it. A) Free-loading. B) Perfect Competition. C) Market Equilibrium. D) Tragedy of the Commons. Show Answer Correct Answer: D) Tragedy of the Commons. 18. Which of the following is NOT true about a public good? A) It is paid for through taxes. B) It is non-rivalrous, so one user doesn't take away from another user. C) It is non-excludable, so it's not restricted to users who don't pay. D) It's an externality, so it has a cost to a third party other than the buyer and seller. Show Answer Correct Answer: D) It's an externality, so it has a cost to a third party other than the buyer and seller. 19. Which of the following offers an explanation as to why the principal-agent problem exists for a firm? A) The firm cares less about profit and more about cost when there are many competitors in the market. B) The firm offers an employee-incentive program in which employees share in the firm's profits. C) The firm operates in a market with many competitors forcing the firm to pay its employees more to keep them from switching to another firm. D) The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks. Show Answer Correct Answer: D) The firm operates to maximize profit while the employees attempt to work as little as possible to earn their paychecks. 20. Negative externalities can be best described as A) When the consumption/production of a good or service has a positive impact on a third party. B) When the consumption/production of a good or service has any impact on a third party. C) When the consumption/production of a good or service depletes the access for a third party. D) When the consumption/production of a good or service has a negative impact on a third party. Show Answer Correct Answer: D) When the consumption/production of a good or service has a negative impact on a third party. 21. Which of the following explains why a city fireworks display on the Fourth of July is provided as a public good? A) Fireworks displays usually take place in a public area. B) Fireworks are a scarce resource. C) Nonpayers cannot be prevented from seeing the fireworks. D) Each consumer pays a fee to see the fireworks. Show Answer Correct Answer: C) Nonpayers cannot be prevented from seeing the fireworks. 22. Monopolistic competition A) Market structure characterized by a single producer in a market. B) Market structure in which a firm has a monopoly because of its location or the small size of the market. C) Market structure having all conditions of pure competition except for identical products. D) Market structure in which the average costs of production are lowest when all output is produced by a single firm. Show Answer Correct Answer: C) Market structure having all conditions of pure competition except for identical products. 23. The market structure with the most control over prices and as a result, the highest prices is: A) Monopolistic Competition. B) Monopoly. C) Oligopoly. D) Perfect Competition. Show Answer Correct Answer: B) Monopoly. 24. Excludable means: A) Multiple people can use something at the same time. B) Everyone is able to access a good. C) Someone can deny access to a good. D) Only one person can use something at one time. Show Answer Correct Answer: C) Someone can deny access to a good. 25. What is the free rider problem? A) Scarcity even when you pay for a good. B) Reaping all the benefits without contributing. C) Common goods that don't have a price. D) HyDEEE never pays for gas. Show Answer Correct Answer: B) Reaping all the benefits without contributing. 26. A shared good or service for which it would be inefficient or impractical to make consumers pay individually and to exclude nonpayers. Examples:Roads, mail, military. A) Public Good. B) Monopoly. C) Market Failure. D) None of above. Show Answer Correct Answer: A) Public Good. 27. A market in which there are many buyers and many sellers of an identical product ..... A) Oligopoly. B) Collusion. C) Perfect competition. D) Monopoly. Show Answer Correct Answer: C) Perfect competition. 28. Which of the following is a characteristic of perfect competition? A) One seller in the whole industry. B) Price maker. C) Produce homogenous product. D) Barrier to entry. Show Answer Correct Answer: C) Produce homogenous product. 29. Market failures occur when A) The accumulation of wealth in the free market is shared between a large group of people. B) A command economy increases production. C) The economy has a strong GDP and low interest rates. D) The combination of goods and services in the free market is not efficient and optimal. Show Answer Correct Answer: D) The combination of goods and services in the free market is not efficient and optimal. 30. Which of the following market structures would be considered the least competitive? A) Oligopoly. B) Monopolistic competition. C) Perfect competition. D) Monopoly. Show Answer Correct Answer: D) Monopoly. 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