Economics Unit 1 - Market failure 0.0 / 5 ? EconomicsMarket failureASAQA Created by: anna_richardsCreated on: 24-02-16 12:50 When does market failure occur? When there is a misallocation of resources in a free market 1 of 25 What is partial market failure? A market exists, but it contributes to a misallocation of resources 2 of 25 What is complete market failure? There is a missing market 3 of 25 What are the 8 reasons for market failure? Public goods, Merit goods, Demerit goods, Positive externalities, Negative externalities, Monopolies, Inequality, Immobility of factors of production 4 of 25 What is a public good? Will not be provided in a free market. Non-rivalry and non-excludable 5 of 25 What is a private good? Will be provided in a free market. Rivalry and excludable 6 of 25 What is the free rider problem? Individuals are able to consume the good by paying nothing towards the cost 7 of 25 How do public goods cause market failure? If left to the free market, the good will not be provided 8 of 25 What is a merit good? A good that possess positive externailities. People often under estimate the social benefits 9 of 25 How do merit goods cause market failure? Generally over priced and under consumed 10 of 25 What is a demerit good? A good that possess negative externailities? People often under estimate the social costs 11 of 25 What are positive externalities? A positive spill over effect to a third party member 12 of 25 How do positive externalities cause market failure? Social benefit > Private benefit 13 of 25 How do negative externalities cause market failure? Social cost > Private cost 14 of 25 What is a monopoly? A firm that has 25% or more market share 15 of 25 How does a monopoly cause market failure? High prices, cause a barrier to entry 16 of 25 What are the 4 main problems with monopolies? Higher prices, Productive inefficiency, Barriers to entry, Product differentiation 17 of 25 What are the 3 main benefits associated with monopolies? Economies of scale, Global competition, Research and development 18 of 25 What is inequality? Unfair distribution of income/wealth among a population 19 of 25 How does inequality cause market failure? People with lower incomes may turn to the government for help 20 of 25 What are the reasons for inequality? Rising property values. Rising number of people on benefits 21 of 25 How does the immobility of factors of production cause market failure? Fails to provide an efficient allocation of resources 22 of 25 What are the 2 main types of factor immobility? Geographical and Occupational 23 of 25 What is the equation of social costs? Private cost + External cost 24 of 25 What is the equation of social benefits? Private benefit + External benefit 25 of 25
Comments
No comments have yet been made