Market Failure

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  • Created by: JoeBall11
  • Created on: 19-01-21 11:41
1.3.1
Types of market failure
1. What is market failure?
2. What are the 3 types of market failure?
3. Why does market failure happen?
1. The failure of a market system to allocate resources efficiently
2. -Externalities
-Public goods
-Information gaps
3. Its when social marginal costs(SMC) are not equal to Social marginal benefit(SMB)
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1.3.2
Externalities
1. What are externalities and how do they cause market failure?
1. -costs and benefits to third party's who are not directly part of the transaction between producers and consumers
-Spill over effect arising from production or consumption.
- This causes market failure because resources cannot be allocated efficiently.
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1.3.2
Externalities
1. What are private costs?
2. What are the private costs of a producer?
3. What are the private costs of a consumer?
4. What are external costs?
1. Costs paid directly by the producer and consumer in a transaction.
2. Typically include wages, rent, raw materials
3. The cost is usually the price paid for the product or service
4. Cost to third party's
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1.3.2
Externalities
1. What are some examples of external costs of production?
2. What are some examples of external cost of consumption?
1. -Air pollution
- noise pollution
- pollution arising from destruction of rainforests
2. -passive smoking
-overeating
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1.3.2
Externalities
1. What are social costs?
2. how do you work out external costs?
3. What can be seen on a negative externality graph?
4. What can be seen on a positive externality graph?
1. The sum of private costs and external costs
social costs= External costs+ private costs
2. Social costs-private costs
3. That in a free market economy there is an over production and over consumption
4. There is under production and under consumption
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1.3.2
Externalities
1. What are private benefits ?
2. What is a private benefits to a producer?
3. What are private benefits to a consumer?
4. What are external benefits?
5. External benefits of consumption?
6. External Benefits of production?
1. Benefits which are received directly by the producer and consumer in a transaction.
2. Revenue received from a good or service
3. The utility gained by the consumer from the use of the product of service.
4. Benefits to third party's.
5. Households wi
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1.3.3
Public goods
1. What is a public good?
2. What two characteristics do public goods have that distinguish them from private goods?
3. What are some examples of public goods?
1. Goods which are provided for many people e.g. NHS, Public transport
2. -Non-rivalrous- consumption of one person does not limit consumption of others.
-Non-excludability- If a good is available for one person it is available for everyone.
3. -Street li
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1.3.3
Public goods
1. How does the market fail with under provision of public goods?
2. What is the free rider problem?
1. Once a public good is provided there is no incentive for anyone to pay for it or buy it. This leads to market failure because no firms want to supply it in the first place.
2. When a public good is provided by someone, other people will be able to get
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1.3.4
Information gaps
1. What is symmetric information?
2. What is asymmetric information?
3. Why can information gaps cause market failure?
1. Where both party's in a transaction have the same information.
2. Where one party in a transaction has more or superior information compared to another.
3. If one person knows more than the other in a transaction, resources may be allocated inefficient
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1.3.4
Information gaps
1. Give 3 examples of asymmetric information?
1. -Housing market- estate agent knows more about the potential problems with the house.
-Life insurance- The consumer may not reveal all aspects of health to the insurance company
-Second hand car sales- The car salesman knows more about car than buyer.
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Card 2

Front

1.3.2
Externalities
1. What are externalities and how do they cause market failure?

Back

1. -costs and benefits to third party's who are not directly part of the transaction between producers and consumers
-Spill over effect arising from production or consumption.
- This causes market failure because resources cannot be allocated efficiently.

Card 3

Front

1.3.2
Externalities
1. What are private costs?
2. What are the private costs of a producer?
3. What are the private costs of a consumer?
4. What are external costs?

Back

Preview of the front of card 3

Card 4

Front

1.3.2
Externalities
1. What are some examples of external costs of production?
2. What are some examples of external cost of consumption?

Back

Preview of the front of card 4

Card 5

Front

1.3.2
Externalities
1. What are social costs?
2. how do you work out external costs?
3. What can be seen on a negative externality graph?
4. What can be seen on a positive externality graph?

Back

Preview of the front of card 5
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