1.8 the market mechanism, market failure and government intervention in markets

Question 1

ad valorem taxes

Answer 1

taxes that are a percentage of price

Question 2

asymmetric information

Answer 2

when one party knows more or has better information than the other party in a transaction e.g. a patient and doctor

Question 3

competition and markets authority (CMA)

Answer 3

government department in the UK that aims to reduce anti-competitive strategies

Question 4

competition policy

Answer 4

government intervention that reduces monopoly power and introduces competition to reduce consumer exploitation

Question 5

complete market failure

Answer 5

occurs when there is a missing market

Question 6

consumption externality

Answer 6

an externality (which may be positive or negative) generated through consumption of a good or service

Question 7

demerit good

Answer 7

goods where the social costs in consumption exceed the private costs in consumption

Question 8

department for Business, Innovation and Skills (BIS)

Answer 8

an organisation that aims to enhance UK industry performance

Question 9

deregulate

Answer 9

reduce the amount an industry is regulated

Question 10

economic welfare

Answer 10

quality of life of a population

Question 11

EU directories

Answer 11

set of checks EU members must pass, ensuring all members have similar/the same legislation

Question 12

EU regulations

Answer 12

set of laws all EU members must comply with

Question 13

externality

Answer 13

external effects imposed on society derived from the production or consumption of a good or service

Question 14

free rider problem

Answer 14

once a public good is produced, there is no way to control who benefits from it

Question 15

geographical immobility of labour

Answer 15

once a public good is produced, there is no way to control who benefits from it

Question 16

government failure

Answer 16

where government intervention leads to a lessening of economic welfare and a misallocation of resources

Question 17

government intervention

Answer 17

when a government actively intervenes and affects market operation

Question 18

immobility of factors of production

Answer 18

when it is hard for factors of production to move across different areas within the economy

Question 19

immobility of labour

Answer 19

inability of labour to move from one occupation to another

there are too main types, geographical and occupational

Question 20

imperfect information

Answer 20

when an economic agent does not hold all the necessary information to make an informed decision about a product

Question 21

incentive

Answer 21

something that motivates an agent in the economy

Question 22

income inequality

Answer 22

differences in size of earning between households/indiviuals

Question 23

market distortions

Answer 23

where interference in a market affects behaviour and prices/output

Question 24

market economy

Answer 24

where output and prices are determined by the workings of supply and demand

Question 25

market failure

Answer 25

occurs when the market mechanism leads to a misallocation of resources

Question 26

merit good

Answer 26

goods where the social costs in consumption deceed the private costs in consumption

Question 27

misallocation of resources

Answer 27

resources are not distributed optimally

Question 28

nationalise

Answer 28

convert from private ownership to public (government) ownership

Question 29

negative externality

Answer 29

negative external effects imposed on society derived from the production or consumption of a good or service

Question 30

non-excludable

Answer 30

a good or service where you are unable to prevent non-paying consumers from benefitting or using the good

Question 31

non-rival

Answer 31

where one person’s consumption of a good or service does not decrease the amount available for consumption by another consumer

Question 32

occupational immobility of labour

Answer 32

occurs where workers find it difficult to transfer between occupations due to a lack of transferable skills

Question 33

outsourcing

Answer 33

when a private sector firm bids to offer a public service

Question 34

partial market failure

Answer 34

occurs when the market is producing a good or service, but at the wrong quantity or price

Question 35

penalties

Answer 35

fines or other forms of punishment that make producing output less profitable

Question 36

positive externality

Answer 36

positive external effects imposed on society derived from the production or consumption of a good or service

Question 37

price celing

Answer 37

a price above which trade is illegal

Question 38

price controls

Answer 38

government controls on prices e.g. maximum or minimum prices

Question 39

price floor

Answer 39

a price below which trade is illegal

Question 40

price mechanism

Answer 40

the way in which prices are determined through forces of supply and demand

Question 41

private benefit

Answer 41

benefits incurred to the individual through consumption or production

Question 42

private cost

Answer 42

costs incurred to the individual through consumption or production

Question 43

private good

Answer 43

an excludable, rival good

Question 44

privatise

Answer 44

covert from public (government) ownership to private ownership

Question 45

production externality

Answer 45

an externality (which may be positive or negative) generated through production of a good or service

Question 46

productivity gap

Answer 46

difference between productivity of UK labour and other countries’ labour

Question 47

property right

Answer 47

legal ownership of a resource

Question 48

public good

Answer 48

a non-excludable, non-rival good

Question 49

public sector

Answer 49

the part of the government financed by and controlled by the government

Question 50

quasi-public good

Answer 50

a good that is not fully non-rival and/or not fully non-excludable

Question 51

quasi-public good

Answer 51

goods that have characteristics of both public and private goods

Question 52

rationing

Answer 52

limiting the amount or quantity of a good

Question 53

regulation

Answer 53

imposing policies, rules, laws, constraints, etc.

Question 54

regulatory capture

Answer 54

regulatory bodies become dominated by the industries in which they were regulating, leading to a decrease in economic welfare

Question 55

resource misallocation

Answer 55

when resources are allocated in a way that doesn’t maximise economic welfare

Question 56

signalling

Answer 56

where a change in the price of goods or services that show supply or demand should be adjusted

Question 57

social benefits

Answer 57

the sum of private benefits and external beenfits

Question 58

social cost

Answer 58

the sum of private costs and external costs

Question 59

specific taxes

Answer 59

taxes that are a set price per unit

Question 60

state provision

Answer 60

where the government provides a good or service

Question 61

subsidy

Answer 61

payment made by the government (or other authority) to incentivise production of a good

Question 62

tax

Answer 62

compulsory levy imposed by the government to de-incentivise production of a good

Question 63

unintended consequences

Answer 63

when the actions of a people or a government have consequences that were not anticipated

Question 64

vouchers

Answer 64

allowances to utilise goods or services at a discount rate