A Plausible Example of Market Failure Due to an Externality

question 79

Multiple Choice

A plausible example of market failure due to an externality is

• A)the cost of building new highways outside of major cities.
• B)the despoiling of rivers and lakes by nitrogen run-off from agricultural fertilizers.
• C)the high salaries enjoyed by professional athletes.
• D)the line-ups at the theatre when a good movie is playing.
• E)a farmer with an apple orchard who also keeps bees.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price is charged for a product.

Oil Products

Refined products derived from crude oil processing, such as gasoline, diesel, jet fuel, and heating oil.

Hugo Chávez

Former Venezuelan military officer and politician who served as the President of Venezuela from 1999 until his death in 2013.

Price Ceiling

A legally imposed maximum price on a good or service, intended to prevent prices from rising above a certain level.