Economics why do some markets fail
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?- Created by: bethany
- Created on: 13-01-13 16:20
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- Why do some markets fail?
- Externalities
- the cost faced by third party consumers or businesses created from an activity they are not involved in. External costs are not taken into consideration in the price mechanism
- Public goods
- Non- rivalry and non - excludability
- FREE RIDER PROBLEM
- VALUATION PROBLEM
- Non- rivalry and non - excludability
- Unstable commodity market
- Volatile prices because: supply changes due to the weather conditions which affect the size of harvest, when supply falls short - prices rise, when supply exceeds - prices fall, effects amplified by price in-elastic demand and Speculators betting future prices
- How does volatility affect their producers?
- RISK: profits and income unpredictable and may inhibit investment spending
- POVERTY: sharp falls in income can cause hardship and poverty and also unemployment
- BALANCE OF PAYMENTS: big swings in prices cause large changes in export revenue - affecting their balance payments and their ability to finance essential imports of food and technology
- Imperfect market knowledge
- ASYMMETRIC KNOWLEDGE- when the seller knows more than the consumer
- Symmetric knowledge - when the consumer and producer have equal market knowledge
- leads to under consumption of merit goods OR over consumption of demerit goods
- Labour immobility
- Geographical immobility - refers to the obstacles which prevent labour moving from one area to another to find work
- relaxation on planning laws, increase the construction of social housing, offering housing subsidies, improving the operation of job centres
- Occupational immobility - refers to the obstacles which prevent labour from changing their type of occupation to find work
- increase the provision of training schemes, increase the provision of further education, increase the provision of higher education
- Geographical immobility - refers to the obstacles which prevent labour moving from one area to another to find work
- Externalities
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