1.8 the market mechanism, market failure and government intervention in markets Flashcards
ad valorem taxes
taxes that are a percentage of price
asymmetric information
when one party knows more or has better information than the other party in a transaction e.g. a patient and doctor
competition and markets authority (CMA)
government department in the UK that aims to reduce anti-competitive strategies
competition policy
government intervention that reduces monopoly power and introduces competition to reduce consumer exploitation
complete market failure
occurs when there is a missing market
consumption externality
an externality (which may be positive or negative) generated through consumption of a good or service
demerit good
goods where the social costs in consumption exceed the private costs in consumption
department for Business, Innovation and Skills (BIS)
an organisation that aims to enhance UK industry performance
deregulate
reduce the amount an industry is regulated
economic welfare
quality of life of a population
EU directories
set of checks EU members must pass, ensuring all members have similar/the same legislation
EU regulations
set of laws all EU members must comply with
externality
external effects imposed on society derived from the production or consumption of a good or service
free rider problem
once a public good is produced, there is no way to control who benefits from it
geographical immobility of labour
once a public good is produced, there is no way to control who benefits from it
government failure
where government intervention leads to a lessening of economic welfare and a misallocation of resources
government intervention
when a government actively intervenes and affects market operation
immobility of factors of production
when it is hard for factors of production to move across different areas within the economy
immobility of labour
inability of labour to move from one occupation to another
there are too main types, geographical and occupational
imperfect information
when an economic agent does not hold all the necessary information to make an informed decision about a product
incentive
something that motivates an agent in the economy
income inequality
differences in size of earning between households/indiviuals
market distortions
where interference in a market affects behaviour and prices/output
market economy
where output and prices are determined by the workings of supply and demand
market failure
occurs when the market mechanism leads to a misallocation of resources