Section 1

1)Market failure is a situation in which

	negative economic profits persist in the long run.
	the market does not provide the ideal or optimal amount of a particular good.
	negative economic profits exist in the short run.
	both a and b
	a, b, and c

2)Sometimes, when goods are produced and consumed, side effects are felt by people who are not directly involved in the market exchanges. In general, these side effects are called

	Coase effects.
	public goods.
	externalities.
	internalities.
	none of the above

3)A negative externality is

	a type of subsidy.
	a type of money price.
	linked to external benefits.
	linked to external costs.

4)Negative externalities that arise from the production of a good

	bring private costs into equality with social costs.
	cause a decrease in the demand for the good.
	impose costs on third parties.
	cause an increase in the demand for the good.

5)When a negative externality exists,

	external costs are necessarily greater than private costs.
	social costs are less than private costs.
	social costs are greater than private costs.
	social costs equal private costs.

6)Suppose the production of a good results in negative externalities. If society produces the output consistent with the intersection of the demand curve and the marginal private cost curve, then

	society will want more output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable.
	society will incur a net social cost.
	the socially optimal level of output will be produced.
	all of the above

7)Mr. Wagner is given a COVID shot by his doctor. This reduces the probability that she will get the COVID and it also reduces the probability that others will get the COVID, too. The latter is an example of a

	negative externality.
	positive externality.
	substitute good.
	complementary good.

8)When a positive externality exists,

	external benefits are necessarily greater than private benefits.
	social benefits are greater than private benefits.
	social benefits are less than private benefits.
	none of the above

9)The side effect of an action that increases the well-being of others is called

	an elasticity.
	an augmentation.
	a positive externality.
	a passive benefit.

10)A __________ good is one that once produced and provided to one person, provides benefits to other persons.

	investment
	consumption
	private
	public

11)Suppose the production of a good results in negative externalities. If output is at the intersection of the demand curve and the marginal social cost curve, then

	the socially optimal level of output will be produced.
	society will incur a net social cost.
	society will want less output produced, and producers will be willing to satisfy this desire at a price that society deems acceptable.
	b and c

12)If society is experiencing a net social cost from the production of a good, this implies that

	producers would rather produce the output at which marginal social cost equals the demand for the good.
	negative externalities are involved in the production of this good.
	the socially optimal level of output is being produced and society is willing to accept the costs that result.
	none of the above