A negative externality occurs when
A) there is rent-seeking.
B) benefits are imposed on individuals that are not part of a transactions.
C) there is creative destruction.
D) costs are imposed on individuals that are not part of a transaction.
QUESTION 2Cartels usually succumb to divisive forces caused by:
a. stringent enforcement of a cartel agreement.
b. the similarity of production costs across member firms.
c. members cheating by giving secret discounts.
d. insufficient profits compared to independent operations.
QUESTION 3Suppose the probability of a near-new car being good is 0.4 while its probability of being a lemon is 0.6 . If risk-neutral consumers are willing to pay 14,000 if the car is in good condition and 8,000 if it is a lemon, a risk averse buyer who knows those probabilities would be willing to pay 10,400 for the car.
Indicate whether the statement is true or false
QUESTION 4The use of government to supplant market outcomes is called
A) market failure.
B) rent seeking.
C) free riding.
D) efficiency.
QUESTION 5When oligopolists join together in a cartel, they:
a. choose to ignore their mutual interdependence.
b. indicate awareness that their behavior is interdependent.
c. violate the law of supply and demand.
d. attempt to behave like perfect competitors.
QUESTION 6A buyer and a seller equally aware of market conditions enter into a contract to exchange a good at some date in the future. If the buyer benefits while the seller loses because the former anticipated the market price more accurately, the seller's loss can be attributed to asymmetric information.
Indicate whether the statement is true or false
QUESTION 7If the market is unable to allocate resources then
A) there is market failure.
B) there is rent-seeking.
C) there are no free-riders.
D) none of these choices.
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