1 What does the term market failure refer to a a firm that i

1. What does the term market failure refer to? a. a firm that is forced out of business because of losses b. an unsuccessful advertising campaign that reduces buyer demand c. a situation in which competition among firms becomes ruthless d. a situation in which the market on its own fails to allocate resources efficiently 2. What are two causes of market failure? a. externalities and market power b. market power and incorrect forecasts of consumer demand c. externalities and foreign competition d. incorrect forecasts of consumer demand and foreign competition 3. Which of the following is NOT a benefit of trade? a. an increased variety of goods b. lower costs through economies of scale c. increased competition d. an ability to control domestic and world prices 4. What is an example of a perfectly competitive market? a. cable TV market b. soybean market c. new car market d. blue jean market 5. When demand is inelastic, what will a decrease in price cause? a. an increase in total revenue b. a decrease in total revenue c. no change in total revenue d. There is insufficient information to answer this question.

Solution

1.d a market which fails on its own to reallocate fresources.

2.a externalites and market power.

3.d an ability to control prices.

4. b. soybean because the products sold in the market are identical and there are large number of buyers and sellers.

5. b a decrease in total revenue as price decreases quantity demanded remains same since demand is inelastic.