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Market Failure and the Role of Government
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Market Failure and the Role of Government
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25 Questions

1. The reason a general sales tax is regressive is because
2. Market power, a person’s ability, human capital, and discrimination are all factors that may result in
3. Since the demand curve is now at D2, all of the following are true EXCEPT
4. Christopher recently moved out of his parent’s house and purchased his own house. He worked all summer on the front- and backyard lawns and gardens to make his new house look nice. Christopher’s new neighbors all appreciated the hard work he put into the outside of his house, as it helped beautify their block and neighborhood. The results of Christopher’s efforts are known as
5. The arrow in the preceding diagram is pointing to the area between a perfect distribution of income and the actual distribution of income. If the Gini ratio is 0.9, it is said that this diagram represents
6. The following graph represents a government intervention in response to a market that produced a positive externality. Use the information provided in the graph to answer questions 217 and 218. How may the government intervene to move the demand curve from D1 to D2?
7. The private sector will not provide for a public good or service due to
8. Suppose Anna earns $50,000 a year and pays $10,000 in taxes. Her friend Sarah earns $100,000 a year and pays only $12,000 a year in taxes. This is an example of
9. Nation A has a high Gini ratio. You can conclude that Nation A
10. A private business will not produce a good like a public radio station, because
11. A ride in a taxicab is a form of
12. If the U.S. government increases a tax to help redistribute income from the wealthy to the poor, it is following a
13. If the supply curve is shifted to S2, which of the following is TRUE?
14. A good that is nonexcludable to other consumers is known as a
15. If producers of a good or service overallocate their resources, then
16. A negative externality will exist when
17. If income increases and the average tax rate falls, this is also known as a
18. If a positive externality emerges, what may happen to the demand curve?
19. The fire department is an example of a(n)
20. The fact that a firefighter’s job is more dangerous than a college professor’s job is an example of
21. Which of the following illustrate a public good? I. Firefighters II. Traffic lights III. A bean burrito IV. Attending a private school
22. A “flat tax” is also known as
23. Industrialized nations often produce negative externalities in the form of pollution. What is a possible solution to fix this negative externality?
24. Last year Anna earned $50,000 in gross income and paid $10,000 in taxes. She recently received a promotion. So next year she will earn $75,000 in gross income and pay $15,000 in taxes. This increase in taxes is a result of
25. All of the following are examples of compensating differential EXCEPT

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