6.1 Socially Efficient and Inefficient Market Outcomes

    Cards (45)

    • What is social efficiency in economics?
      Maximizing total societal welfare
    • Social efficiency occurs when resources are allocated to maximize the combined consumer surplus and producer surplus.
    • Social inefficiency arises when resources are optimally allocated, leading to increased societal welfare.
      False
    • When does social efficiency occur in terms of marginal social benefit (MSB) and marginal social cost (MSC)?
      MSB equals MSC
    • The concept of social efficiency considers externalities that affect society as a whole.
    • What are the main causes of market failure?
      Externalities, public goods, asymmetric information, monopoly power
    • A factory's pollution, which harms nearby residents, is an example of a negative externality.
    • Microsoft's dominance in operating systems is an example of monopoly power causing market failure.
    • What are the sources of market inefficiency?
      Externalities, public goods, asymmetric information, monopoly power
    • Market failure occurs when the free market fails to allocate resources efficiently.
    • Public goods are excludable and rival, leading to efficient allocation by the market.
      False
    • What are the main methods of government intervention to address market failures?
      Regulations, taxes, subsidies, direct provision, public ownership
    • Taxing carbon emissions is an example of using taxes to address negative externalities.
    • Direct provision by the government ensures access to essential services but may be less efficient than private provision.
    • What is the primary goal of government policies in addressing market failures?
      Correct inefficiencies
    • The government uses regulation to address externalities and monopoly power.
    • Taxation and subsidies can be used to internalize externalities.
    • What type of goods does the government provide to ensure adequate supply?
      Public goods
    • The government provides information to mitigate asymmetric information.
    • Match the government intervention method with its purpose:
      Regulation ↔️ Correct externalities and monopoly power
      Taxation/Subsidies ↔️ Internalize externalities
      Public Goods Provision ↔️ Ensure supply of non-excludable goods
      Information Provision ↔️ Reduce asymmetric information
    • Emission standards for factories are an example of government regulation.
    • A carbon tax is an example of government taxation to internalize a negative externality.
    • What is an example of the government providing a public good?
      Funding national defense
    • Imposing a carbon tax shifts the market towards social efficiency.
    • Social inefficiency occurs when market outcomes fail to maximize total social welfare.
    • What are externalities in market transactions?
      Costs or benefits to third parties
    • Positive externalities lead to the underproduction of goods.
    • What is the purpose of a carbon tax imposed by the government?
      Reduce pollution
    • Social inefficiency occurs when market outcomes fail to maximize total social welfare
    • When negative externalities exist, firms tend to underproduce goods because they bear the full social costs.
      False
    • What is an example of a negative externality?
      Factory polluting a river
    • What is an example of a positive externality?
      Individual getting vaccinated
    • Social efficiency is achieved when resources are allocated to maximize the combined consumer and producer surplus
    • What two conditions must be equal for social efficiency to be achieved?
      MSB and MSC
    • Social efficiency builds upon economic efficiency by considering externalities.
    • Market failure occurs when the free market fails to allocate resources efficiently
    • What is an example of a market failure caused by externalities?
      Pollution from a factory
    • What is a characteristic of public goods that leads to underproduction in the market?
      Non-excludable and non-rival
    • What type of market failure arises from asymmetric information?
      Used car sales
    • Monopoly power can lead to higher prices and lower output