Do markets always work?

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What does allocation of resources reflect?
Consumers choices and real costs of production.
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What is a market?
A medium where buyers and sellers interact and agree to trade at a price?
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What is the profit signalling method?
The means by which resources are allocated in a market economy. High profit levels attract more profit and loss pushed resources to another area.
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What is allocation of resources?
How resources are shared out in an economic system.
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What is monopoly power?
Businesses that are able to behave like a monopoly and have some control over price and can create barriers to entry.
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What is market failure?
Happens when a market does not efficeintly allocate resources to achieve the greatest consumer satisfaction.
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What is allocative efficiency?
When resources are used to achieve maximum benefit to everyone, it is impossible to redistribute them withour making somene worse off
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What are externalities?
May create spillover effects like pollution that don't affect the price of the product.
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What are public goods?
A good that the free market doesn't provide at all. There is no incentive to supply it, it is impossible to charge for it and make a profit and impossible to prevent anyone else consuming it for free.
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What are public goods said to be?
Non-Rivalrous and non-excludable.
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What does non- rivalrous mean?
If one person consumes a good it does not affect or reduce the amount left for someone else.
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What does non-excludable mean?
It is impossible to prevent people who have not paid for a good from using it
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What is the free rider problem?
Occurs when the public goods are under provided because people are able to cosume a good with out paying for it.
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What is the public sector?
The part of the economy that is controlled or owned by the government and funded by tax revenue.
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What is the private sector?
The part of the economy that is controlled or owned by individuals, or companies that are owned by individuals.
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What is a merit good?
Can be provided by the private sector, supplied in a quantity that the free market provides is lower that the optimum for society.
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Why does the government provide merit goods?
On an individual level consumers don't always make choices that benefit society. Health care and education is essential to be productive and competitive. Many can't afford some services or would not consume them or spend money elsewere.
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What is a demerit good?
Goods that are overproduced by the free market, in quantities that are above optimal for society. Generally thought to be bad for society.
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Give some examples of demerit goods?
Alcohol, drugs, prositiution, gambling
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How does the government control the use of demerit goods?
Taxation, legislation, regulation, education and outrights bans
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What is an external cost?
Costs or negative side effects imposed on a third party who is neither the producer or the consumer.
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What is the external benefit?
Benefits or positve side effects enjoyed by the third party who is neither the producer nor the consumer.
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Give an example of a positive externality?
If you benefit from a good education and become a doctor or teacher you will benefit on a private level but society will benefit as well.
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What is a social cost?
The total cost of producing goods or services and are calculated by adding together the private and external cost.
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What are social benefits?
The total benefits of producing goods and services and are calculated by adding together private and external benefits.
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What are externalities?
Positive or negative effects on third parties.
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What are the probelms with measuring externalities?
How do you measure the long term effects
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What are the private costs of buying a car?
Price of car and depreciation, running costs, tax, insurance
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What are the private benefits of buying a car?
Independence, convenience, access to work, access to leisure.
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What are the externalities of buying a car?
Congestion increases cost of transportation, accidents may happen, impact on infrastructure, pollution may cause illness.
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Card 2

Front

What is a market?

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A medium where buyers and sellers interact and agree to trade at a price?

Card 3

Front

What is the profit signalling method?

Back

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Card 4

Front

What is allocation of resources?

Back

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Card 5

Front

What is monopoly power?

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