Economics Unit 1 - Market failure

HideShow resource information
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

Other cards in this set

Card 2

Front

What is partial market failure?

Back

A market exists, but it contributes to a misallocation of resources

Card 3

Front

What is complete market failure?

Back

Preview of the front of card 3

Card 4

Front

What are the 8 reasons for market failure?

Back

Preview of the front of card 4

Card 5

Front

What is a public good?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Market failure resources »