When Markets Fail, Public Policy Can

question 301

Multiple Choice

When markets fail, public policy can

• A)do nothing to improve the situation.
• B)potentially remedy the problem and increase economic efficiency.
• C)always remedy the problem and increase economic efficiency.
• D)in theory, remedy the problem, but in practice, public policy has proven to be ineffective.

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Definitions:

Marginal Cost

The cost added by producing one additional unit of a product, focusing on changes in overall cost with slight increases in production.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Marginal Analysis

The examination of the benefits and costs of an additional unit of consumption or production to make decisions on allocations of resources.

Risk Aversion

The behavior of preferring to avoid loss rather than making a gain, reflecting a preference for certainty over uncertainty.