Deck 3: Spontaneous Order, Markets, and Market Failure

Question 1

Government rules and regulations can

A)never enhance trade
B)add information to an efficient market
C)enhance trade
D)all of these choices

Answer 1

enhance trade

Question 2

Asymmetric information includes the concepts of

A)moral hazard transfer costs.
B)adverse selection and public goods.
C)adverse selection and moral hazard.
D)negative and positive externalities.

Answer 2

adverse selection and moral hazard.

Question 3

When people by insurance they often adopt risky behavior.This is an example of

A)adverse selection.
B)moral hazard.
C)a negative externality.
D)moral hazard and a negative externality.

Answer 3

moral hazard.

Question 4

Markets can fail when there is

A)a clear definition of property rights.
B)common property.
C)an absence of externalities.
D)competition.

Question 5

Asymmetric information often makes it difficult to tell good from bad.This is a problem of

A)moral hazard.
B)negative externalities.
C)adverse selection.
D)moral hazard and not adverse selection.

Question 6

"Consumed by one, consumed by all." This describes

A)public goods.
B)private goods.
C)consumer goods.
D)inferior goods.

Question 7

A problem of adverse selection can be addressed by

A)by teaching ethics in business schools.
B)creating a positive externality.
C)government regulation.
D)collecting more information.

Question 8

When a negative externality is present

A)the market price is too low.
B)the market price is too high.
C)the market price is at equilibrium.
D)none of these choices.

Question 9

The use of government to supplant market outcomes is called

A)market failure.
B)rent seeking.
C)free riding.
D)efficiency.

Question 10

Government rules and regulations can, at times,

A)improve the function of property rights.
B)limit free-riders.
C)reduce negative externalities.
D)all of these choices.

Question 11

When a positive externality is present

A)the market price is too low.
B)the market price is too high.
C)the market price is in equilibrium.
D)none of these choices.

Question 12

Externalities occur when there is a lack of

A)free-riding.
B)well-defined property rights.
C)market participants.
D)government regulation.

Question 13

If there are no externalities present in a market

A)the market price is too low.
B)the market price is too high.
C)the market price is in equilibrium.
D)none of these choices are true.

Question 14

A negative externality occurs when

A)there is rent-seeking.
B)benefits are imposed on individuals that are not part of a transactions.
C)there is creative destruction.
D)costs are imposed on individuals that are not part of a transaction.

Question 15

If the market is unable to allocate resources then

A)there is market failure.
B)there is rent-seeking.
C)there are no free-riders.
D)none of these choices.

Question 16

Public goods

A)are products supplied by the government.
B)are consumed by everyone when one person consumes them.
C)are efficiently produced by profit-seeking firms.
D)are freely traded on a market.

Question 17

Chickens are not endangered because

A)there are clear property rights to them.
B)government regulates chicken processors.
C)there are positive externalities.
D)they are free and not owned by anyone.

Question 18

In the consumption of public goods

A)consumers can be excluded.
B)free riders can be excluded.
C)consumers cannot be excluded.
D)government is excluded.

Question 19

Internalizing the externalities means that

A)all costs have been accounted for.
B)all costs and benefits have been accounted for.
C)all benefits have been accounted for.
D)free-riders have paid a tax to the government.

Question 20

Corruption

A)can create certainty
B)is only a problem found in democratic societies
C)is a problem of not enough government
D)none of these choices

Question 21

Negative externalities lead to over supply in a market.

Question 22

People can be excluded from consuming public goods.

Question 23

If government intervention in the market creates market inefficiencies then

A)there is government failure.
B)market failure.
C)network externalities.
D)the economy must be democratic.

Question 24

Adverse selection and moral hazard are not problems associated with market transaction.

Question 25

If all actions are known to all then there is

A)a focused economy.
B)a negative externality.
C)transparency.
D)a dictatorship.

Question 26

Markets never fail.

Question 27

Corruption is only present in developing nations.

Question 28

Government rules and regulations can, at times,

A)higher transactions costs.
B)lower transactions costs.
C)better management.
D)all of these choices.

Question 29

Positive externalities lead to under supply in a market.

Question 30

Common property can lead to market failure.

Question 31

When bankers make loans they do not have an adverse selection problem.

Question 32

Buying insurance can create a moral hazard.

Question 33

A possible problem of democracy

A)is moral hazard.
B)is protected property rights.
C)is mob rule.
D)none of these choices is a problem.

Question 34

Government rules can increase transparency and lower market efficiency.

Question 35

Public goods are produced by profit-seeking firms.

Question 36

Positive and negative externalities can lead to market failure.

Question 37

Negative externalities are benefits that people lose in a transaction.

Question 38

Clearly defined property rights can create negative externalities.

Question 39

If government rules and regulations hurt free trade then

A)one might find higher levels of investment.
B)one might find more corruption.
C)one might find positive externalities.
D)all of these choices

Question 40

Government failure means that government action reduces market efficiency.