1.3 market failure key words

Question 1

what is market failure

Answer 1

when the market is unable to efficiently allocate scarce resources to meet the needs of society

aka allocative inefficiency

Question 2

define complete market failure

Answer 2

occurs when there is no market whatsoever

Question 3

define partial market failure

Answer 3

occurs when a market exists but there is a misallocation of resources

Question 4

three examples of how market failure can present

Answer 4

externalities

underprovision of public goods

information gaps

Question 5

4 foundations of allocative efficiency

Answer 5

1. competition between firms - no monopoly
2. no barriers to entry into the market
3. communication - perfect information
4. maximise profit = maximise utility

Question 6

what is an externality

Answer 6

an unintended cost or benefit to a third party that is not reflected in the final price of the economy activity

Question 7

what does under provision of public goods refer to

Answer 7

firms are profit seeking so it is not in their benefit to offer public goods

Question 8

what is the information gap

Answer 8

when there is information the buyer is unaware of

Question 9

.

Answer 9

.

Question 10

why are public goods not provided by the private sector

Answer 10

the free rider problem wherein someone who benefits from a good or service without paying for it

there is little incentive for firms to supply public goods so govts are likely to intervene

Question 11

public goods must be

Answer 11

non rival goods & non excludable goods

Question 12

what does it mean to be non rival

Answer 12

where consumption of the good does not reduce the amount available for consumption by others

Question 13

what does it mean to be non excludable

Answer 13

where, once provided, it is impossible to stop other individuals from using them

Question 14

quasi public goods

Answer 14

public goods that have taken on the characteristics of private goods