Based on Our Study of Market Failure and Government Failure

question 179

Multiple Choice

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

• A) the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to adopt.
• B) the government has much imperfection and creates a lot of inefficiencies; therefore, it is best to adopt a pure market system.
• C) it is best to always compare perfect markets against an idealized benevolent government that efficiently responds to the wants of society.
• D) we must carefully compare the benefits of government intervention in our markets against the costs of such intervention.

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Definitions:

Variable Overhead

Costs that fluctuate with the level of production activity, such as utilities for the manufacturing plant or commissions for sales staff.

Efficiency Variance

The difference between the actual amount of resources used in production and the amount that was expected to be used, indicating the level of efficiency in using materials, labor, and overhead.

Denominator Level

A term used in cost accounting to describe the level at which fixed costs are allocated to units of production.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated before the period begins based on estimated costs.