What is market failure?

The efficient allocation of resources in a free market.

The over-provision of harmful goods and under-provision of beneficial goods.

The impact on a third party not directly involved in a market transaction.

The cost incurred by a producer, consumer, or government to produce or consume a good or service.

What are externalities in economics?

Costs incurred by producers in the production process.

The unintended consequences of government intervention in markets.

Impacts on third parties not involved in a market transaction.

The overall benefits to society from economic activities.

How does a maximum price intervention affect the market?

It benefits sellers by allowing them to charge higher prices.

It increases government revenue through indirect taxation.

It addresses sudden price surges in the market.

It encourages competition among sellers.

What is the purpose of implementing minimum prices in product markets?

To reduce the consumption of demerit goods.

To increase government revenue.

To promote competition among sellers.

How do producer subsidies influence market outcomes?

They decrease demand for goods with negative externalities.

They increase government revenue through direct taxation.

They encourage higher production of goods with positive externalities.

They decrease consumer prices without affecting producers.

Why do governments impose indirect taxes on demerit goods?

To decrease the quantity demanded and discourage consumption.

To increase the revenue collected from producers.

To promote competition among producers of similar goods.

To encourage international trade of demerit goods.

What is the primary goal of government intervention to address market failure?

To eliminate all economic inefficiencies.

To achieve a perfect equilibrium in all markets.

To ensure resources are allocated efficiently.

To maximize government revenue from economic activities.

How does a minimum wage impact the labor market?

It increases demand for labor and reduces unemployment.

It decreases supply of labor and increases wages.

It stabilizes wages and reduces the need for government intervention.

It promotes flexible employment practices among firms.

What role do externalities play in market failure?

They ensure efficient allocation of resources.

They create a balance between private and social costs.

They lead to suboptimal allocation of resources.

They minimize government intervention in markets.

Why do governments use maximum prices in certain markets?

To maximize profits for producers.

To ensure fair distribution of goods during shortages.

To encourage luxury consumption among consumers.

To reduce competition among sellers.

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