When Goods Are Produced Privately, but the Cost of Their

question 151

Multiple Choice

When goods are produced privately, but the cost of their purchase is paid for by the taxpayer or some other third party,

• A) consumers have a strong incentive to search out those firms offering them the best deal.
• B) private producers of such goods will have little incentive to control costs and provide them at low prices.
• C) goods and services will only be supplied if consumers are willing to pay an amount sufficient to cover their production costs.
• D) the invisible hand will direct consumers and producers toward an efficient level of output.

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Definitions:

Asymmetric Information

Asymmetric information occurs when one party in a transaction has more or better information than the other, leading to an imbalance in the decision-making process.

Unsuspecting Buyer

A consumer who purchases goods or services without being aware of all the relevant information, often leading to disadvantageous situations.

Auto Transmission

A type of vehicle transmission that automatically changes gear ratios as the vehicle moves, without input from the driver.

Adverse Selection

A situation in insurance and other markets where buyers and sellers have different information, leading those more likely to produce negative outcomes to participate more actively.