What is meant by market failure?
What will be an ideal response?
Market failure occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value.
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Suppose that everyone prefers to live in a society without poverty. Further suppose that some private charities are successful in reducing poverty. People who do not contribute to the charities
a. receive no external benefit from private antipoverty programs. b. decrease the reliance of individuals on antipoverty programs. c. can free ride on the generosity of others. d. are most likely to be in favor of government-sponsored programs.
Suppose that a $4 billion increase in government spending increases Real GDP by $60 billion, and that a $3 billion tax reduction increases Real GDP by $68 billion. In this situation, the tax multiplier is _______________ the government spending multiplier
A) less than B) greater than C) equal to D) none of the above