1) Which of the following is likely to create inefficiency in a market? Small nu
ID: 1225605 • Letter: 1
Question
1) Which of the following is likely to create inefficiency in a market?
Small number of buyers
Homogeneous products
Very low entry barriers
Large number of sellers
2) Anti-trust laws empower the government to:
deal with free-rider problems.
market public goods to substitute private goods.
raise the market price to a minimum prescribed level.
prevent the emergence of tight oligopolies.
3) In a natural monopoly:
the marginal costs of production are low.
the total costs are very low.
the average costs rise with increase in production.
the minimum efficient scale is very low.
4) The effects of market activity that fall on third parties outside the considerations of the buyer and seller is known as:
government failure.
adverse selection.
deadweight loss.
externalities.
5) According to Ronald Coase, the problem of externalities is created by:
lack of government intervention.
inadequate property rights.
excess market demand.
high marginal costs of production.
6) A public good is defined as a product that is:
consumed in a Pareto inefficient manner.
produced by firms that are subsidized by the government at a loss.
consumed by a limited number of people.
consumed by one individual without denying others of its benefits.
7) The issue of _____ corresponds to whether the distribution of goods and services to individuals and the profits to firms is fair.
government intervention in the market
efficiency
equity
cost reduction
Explanation / Answer
Answer )
Q1 ) A.) small number of buyers. ( example of Oligopsony)
Q2.) D.) prevent the emergence of tight oligopolies. ( Antitrust laws protect competition. Free and open competition benefits consumers by ensuring lower prices and new and better products )
Q3.) A.) the marginal costs of production are low. ( A natural monopoly has a high fixed cost for a product that does not depend on output, but its marginal cost of producing one more good is roughly constant, and small.)
Q4.) D.) externalities.
Q5.) B.) inadequate property rights. ( Coase theorem says if property rights are complete and parties can negotiate costleslly, then the parties will always negotiate an efficient solution to the externality.)
Q6.) D.) consumed by one individual without denying others of its benefits. ( Non-rival & Non-Exclusion )
Q.7) c.) equity
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