1.3.1

Question 1

What is the main role of prices in a market economy?

Answer 1

To allocate resources efficiently

Question 2

When do market failures exist?

Answer 2

When the competitive outcome of markets is not efficient

Question 3

When does complete market failure occur?

Answer 3

When the market does not supply products at all (there is a missing market)

Question 4

When does partial market failure occur?

Answer 4

When the market functions/exists, but it suppliers wither the wrong quantity of product or at wrong price

Question 5

What are examples of market failure?

Answer 5

-Negative (production) externalities
-Positive (consumption) externailities
-public goods
-Monopoliesb market power
-Immobility and inequality

Question 6

What is an example of negative externalities?

Answer 6

The effects of environmental pollution causing the social cost of production to exceed the private cost.

Question 7

Imperfect information or information failures means’s that merit goods are?

Answer 7

Under-produces while demerit goods are over-produced or over-consumed.

Question 8

What are examples of merit goods?

Answer 8

-Health programmes
-Early years education
-Subsidised bike schemes
-Public libraries/ community spaces
-Museums and Galleries
-Free school meals/ nutritional advice

Question 9

What are examples of demerit goods?

Answer 9

-Hugh caffeine energy drinks
-High-far, high sugar and high-salt foods.
XBiolent films and games
-Hands free mobile phones in vehicles
Alcohol fraud and binge drinking
-Tobacoo products