Market failure implies that the market mechanism
A. Causes shortages or surpluses in the market.
B. Leads the economy to a point outside the production possibilities curve.
C. Causes government failure.
D. Leads the economy to the wrong mix of output.
Answer: D
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You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500 . If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years?
a. $500(1.05)2 + $500/(1.05)2 b. $500(1.05)2 + $500 c. $500 + $500/(1.05)2 d. $500 + $500
Consider an auctioneer who is selling an item through an auction. It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000. Based on this information, we can conclude that the expected revenue in this auction will be:
A. $2,000. B. $1,000. C. $1,900. D. There is insufficient information to determine the expected revenue.
Starting from long-run equilibrium, an increase in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; higher C. lower; higher D. higher; potential
Short-term securities are usually called ________ and long-term securities are usually called ________.
A. loans; notes B. bills; bonds C. bonds; stocks D. notes; bills