Economics: Market failure Unit 1

Quiz by ciwunze, updated more than 1 year ago
Created by ciwunze almost 7 years ago


Give yourself the opportunity to pass the Multiple Choice questions

Resource summary

Question 1

Choice is an important element in the basic economic problem because
  • limited resources have alternative uses.
  • wants increase with income.
  • Incomes are distributed unequally
  • High demand leads to high prices

Question 2

A misallocation of resources is most likely to occur in monopoly if
  • A other firms enter the industry.
  • B higher prices are charged than under competitive conditions.
  • C market output increases.
  • D there are economies of scale

Question 3

An economy is always productively efficient if it
  • A continually increases its average standard of living.
  • B maximises investment in capital goods.
  • C is operating with full employment of labour.
  • D can only produce more of one good by producing less of another.

Question 4

Which one of the following would shift the supply curve for a good to the left? A decrease in
  • A demand for the good
  • B subsidies granted to producers
  • C the rate of growth of labour productivity
  • D the elasticity of supply of the good

Question 5

Negative externalities exist in a market for a good giving rise to a misallocation of resources. This misallocation is most likely to have resulted from
  • A the product being over-priced.
  • B over-production of the product.
  • C too little consumption of the product.
  • D too few resources devoted to producing the product

Question 6

In a buffer-stock scheme
  • A an organisation might buy in the open market to maintain a minimum price in the market for a product.
  • B governments restrict supplies of a product coming onto an open market in order to lower prices of the product.
  • C buffer stocks are kept to sell if the price of a product starts to fall.
  • D buffer stocks are sold when there are surpluses in the market.

Question 7

Which one of the following situations would lead to an increase in equilibrium price?
  • A Demand is perfectly inelastic and a firm’s labour costs fall.
  • B Demand is perfectly elastic and a firm’s labour costs rise.
  • C Supply is perfectly elastic and the price of a substitute good falls.
  • D Demand is perfectly inelastic and a firm’s labour costs rise.

Question 8

Which one of the following is true?
  • A A positive statement is one which can be tested against the facts.
  • B A positive statement is one which never contains words such as ‘could’ or ‘should’.
  • C A normative statement is one which can be scientifically proven to be true or false.
  • D A normative statement is one which never contains words such as ‘is’ or ‘will’ or ‘always’.

Question 9

The price mechanism helps to allocate resources efficiently because
  • A it results in lower rewards being paid to factors of production when demand for the output they produce increases.
  • B it will lead to a distribution of output amongst individuals on the basis of greatest need.
  • C the prices of non-renewable resources will tend to rise as the stock of such resources nears depletion.
  • D it will always ensure that competition between firms prevents high profits being earned.

Question 10

The cross elasticity of demand between two complementary products is always
  • A negative.
  • B positive.
  • C zero.
  • D greater than 1.

Question 11

Which one of the following is an appropriate form of government intervention for the problem identified?
  • A The introduction of pollution permits to limit positive externalities
  • B The use of a buffer-stock scheme to stabilise the price of a public good
  • C The imposition of a maximum price for a merit good
  • D The provision of a subsidy for a product which generates negative externalities

Question 12

Which one of the following is associated with a missing market?
  • A A monopoly restricting output
  • B The production of a negative externality
  • C A firm deciding to produce a private good
  • D A government subsidising agricultural production

Question 13

At current levels of output, the marginal social benefit of a good is greater than its marginal private benefit. As a result, there are likely to be
  • A positive externalities in consumption.
  • B positive externalities in production.
  • C negative externalities in consumption.
  • D negative externalities in production

Question 14

An airline announces that it is ‘slashing fares on all of its flights’. Given a fare reduction of 35%, what would be the expected percentage rise in demand for those flights if the company has estimated their price elasticity of demand is -2.0?
  • A 17.5
  • B 175.0
  • C 7.0
  • D 70.0

Question 15

‘Electricity suppliers are required to buy a growing amount of electricity from renewable energy generators. By 2010, this must amount to at least 10 per cent of total electricity bought from all generators. Green energy generators are paid more for their electricity because there is a scarcity of supply of electricity generated from renewable resources.’ It can be deduced from the data above that
  • A the government is subsidising the production of renewable energy.
  • B the social cost of electricity generated from renewable resources is greater than the private cost.
  • C the government is subsidising the negative externalities arising from the production of ‘green energy’.
  • D electricity suppliers are paying higher average prices for their electricity because some of the electricity is generated from ‘green sources’.

Question 16

One reason why specialisation raises labour productivity is because
  • A specialisation shifts the production possibility boundary to the left.
  • B labour replaces capital to produce goods and services.
  • C specialisation requires an economy to produce on its production possibility boundary.
  • D the division of labour makes it cost-effective to provide workers with specialist equipment.

Question 17

Two products are in joint supply when
  • A a fall in the output of one product is accompanied by a decrease in the output of the other product.
  • B an increase in the demand for one product reduces the supply of the other product.
  • C a rise in the quantity supplied of one product reduces the supply of the other product.
  • D a fall in the price of one product reduces the cost of supplying the other product.

Question 18

Government failure always occurs when
  • A government intervention leads to a net welfare loss compared to the free market solution.
  • B social costs in a market are greater than social benefits.
  • C the government fails to intervene in the market.
  • D externalities exist in a market.

Question 19

The marketing department of a company manufacturing and selling washing machines has found that its product has a price elasticity of demand equal to ñ0.75. This suggests that if the company raises the price of washing machines
  • A the quantity demanded will fall by 75%.
  • B the amount consumers spend on the product will increase.
  • C the quantity demanded will increase by 75%.
  • D the amount consumers spend on the product will fall.

Question 20

A market is defined as being in equilibrium when
  • A there is maximum output at minimum cost.
  • B prices are at their lowest possible level.
  • C there is no tendency for the market price to change.
  • D consumer satisfaction is maximised

Question 21

ëAccording to the Environment Secretary, the country has to ìface up to the need to make some difficult choicesî on reducing its growing mountain of waste. Household waste is growing at about 3% a year, creating a need for a doubling of waste disposal capacity by 2020. But landfill and incineration are unpopular, while the introduction of recycling and composting has been hampered by a lack of demand for recycled materials.í It can be inferred from the data that
  • A the opportunity cost of landfill is incineration.
  • B greater composting of waste would reduce the annual rate of growth of waste.
  • C the private cost of waste disposal is greater than the social cost.
  • D prices for recycled materials are low.
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