Question

1. Which one of the following would be an example of a supply-side market failure?

A. Your business wants to attract repeat customers by putting on a customer-appreciation picnic at a public park, but you decide not to because you couldn't prevent noncustomers from consuming the food and entertainment you provided. B. Everyone rushes to the local retail outlet at midnight on the day of the release of a new video game console, and the store runs out before everyone is able to buy one. C. A gas station is slowly leaking diesel fuel from its underground tanks, but the state uses taxpayer money to clean up the pollution rather than requiring the business to pay. D. A gas station is slowly leaking diesel fuel from its underground tanks, and after the leak is discovered, the business immediately cleans up the pollution at its own expense.

2.The law of increasing opportunity costs states that

A. if the prices of all the resources used to produce goods increase, the cost of producing any particular good will increase at the same rate. B. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. C. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount. D. the sum of the costs of producing a particular good can't rise above the current market price of that good.

3.Why is regulatory capture a potential government failure?

A. When regulators get too close to the industry they're meant to manage, they may begin to create rules and laws that benefit the industry over the public. B. Laissez-faire economics dictates there should be no government intervention in the markets at all. C. It prevents the government from supplying important public goods. D. The right to coerce is powerful and prone to abuse.

4 .Jacinta, Juan, and Julian have all decided to start a business together. They'll pool their resources to get it started, they'll share any profits or losses from the business equally, and each of them will be personally responsible for any debts or liabilities from the business. What type of business should they form?

A. Corporation B. Sole proprietorship C. Capital accumulation D. Partnership

5.Imagine that the mayor of your town receives most of his reelection funding from cattle industry clients. As soon as he is reelected to office, he passes a law allowing cattle to be driven through the downtown area. The law is very unpopular, and it could be considered a result of _______ on behalf of the cattle industry clients. A. collective-action problems B. political corruption C. Pigovian taxes D. rent-seeking behavior

Answer 1

1. Market failure is defined as inefficient distribution of goods and services in the free market. In other words, the individual incentives for rational behavior do not lead to rational outcomes for the group. Option B, states that demand of new video games during release day is exceeding the supply and hence is a market failure corresponding to productive and allocative inefficiency. Hence ,option B is correct.

2. The law of increasing opportunity costs states that as we increase production of one good, the opportunity cost to produce an additional good will increase. Hence, if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so. Therefore, option B is correct option.

3. Regulatory capture is a potential government failure when regulators get too close to the industry they're meant to manage, they may begin to create rules and laws that benefit the industry over the public. Hence, option A is correct.

4. This is an example of Partnership business and hence option D is correct.

5. It is an political corruption as mayor of the town, which is a political body, took decision on his favor. Hence, correct option is B.