Economics 5

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  • Created by: Gabrielle
  • Created on: 29-12-13 17:27
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  • Market Failure
    • Sources
      • Externalities
        • Negative
          • Pollution
          • Congestion
          • Negative externalities lead markets to produce a more than is socially desirable
        • Positive
          • Education
          • Research
          • Immunisation
          • Positive externalities lead markets to produce less than is socially desirable
        • Taxes enacted to correct the effects of negative externalities are called Pigovian taxes
      • Asymmetric information
      • Market Power
    • Private Costs
      • Paid by individuals or firms
    • Social Costs
      • Private Costs + External costs
    • Consumer Surplus
      • Amount a buyer is willing to pay for a good - the amount the buyer actually pays for it.
      • Area below the demand curve and above the price
    • Producer Surplus
      • Amount a seller is paid - the cost of production
      • The area below the price and above the supply curve
    • Tax
      • On Sellers shifts the supply curve upwards by the amount of tax
      • When a good is taxed, buyers and sellers share the burden of the tax. Only rarely will it be shared equally
    • Subsidies
      • Shifts supply curve downwards


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