Efficiency and Market Failure
114 questions· page 1 of 12
What is an example of market failure?
Options
A a firm incurring a loss by selling goods at prices below the average cost
B a guaranteed price that results in the accumulation of unsold stocks
C low income earners being unable to buy high-priced goods
D under-provision of a socially desirable good
A profit-maximising monopoly makes an abnormal profit and decides to reinvest some of this profit to improve its capital stock.
What are the most likely outcomes from this change?
Options
| allocative efficiency | dynamic efficiency | productive efficiency | |
|---|---|---|---|
| A | improves | improves | improves |
| B | unchanged | improves | improves |
| C | improves | unchanged | unchanged |
| D | unchanged | unchanged | improves |
The diagram shows the cost and revenue curves for a natural monopoly.
Which statement is correct?
Options
A P2 and Q2 will achieve both allocative efficiency and productive efficiency.
B P2 and Q1 will achieve productive efficiency but not allocative efficiency.
C P3 and Q3 will achieve allocative efficiency but not productive efficiency.
D P3 and Q3 will achieve both allocative efficiency and productive efficiency.
When is allocative efficiency achieved?
Options
A when a perfectly competitive market is in equilibrium
B when everybody who needs the product can obtain it
C when firms produce at the lowest possible cost
D when monopolistic firms make normal profits
The diagram shows the cost and revenue curves for a natural monopoly.
Which statement is correct?
Options
A P2 and Q2 will achieve both allocative efficiency and productive efficiency.
B P2 and Q1 will achieve productive efficiency but not allocative efficiency.
C P3 and Q3 will achieve allocative efficiency but not productive efficiency.
D P3 and Q3 will achieve both allocative efficiency and productive efficiency.
A country's government imposes a tariff on steel imports.
What is the likely impact of this tariff on this country's economy?
Options
A It will make this country's steel exports more price competitive.
B It will lead to productive inefficiency in this country's steel industry.
C There will be an improvement in this country's terms of trade.
D There will be a decrease in producer surplus for this country's steel producers.
What is the most likely combination of circumstances leading to a good being under-consumed?
Options
| the good is a demerit good | there are external benefits in consumption | |
|---|---|---|
| A | no | no |
| B | no | yes |
| C | yes | yes |
| D | yes | no |
Why does the lack of property rights cause an inefficient allocation of resources?
Options
A Scarce resources are depleted because the owner has sold them too cheaply.
B Scarce resources are depleted because they had zero cost to the users.
C Scarce resources are under-allocated to the provision of demerit goods.
D Scarce resources are under-allocated to the provision of merit goods.
What is most likely to lead to a Pareto-optimal outcome?
Options
A offering bulk-buy discounts to customers who join a loyalty scheme
B switching labour from producing low-priced products to producing high-priced products
C switching production from labour-intensive products to capital-intensive products
D training low-skilled workers to operate machinery effectively
The diagram shows the effect of introducing an effective national minimum wage (NMW) in a labour market with a profit maximising monopsonist employer.
What is the effect of the NMW on the deadweight welfare loss in this market?
Options
A It falls from RST to UVT.
B It falls from RSVU to UVT.
C It rises from UVT to RST.
D It rises from UVT to RSVU.