2.1 Market Failure Flashcards
1
Q
what is a free market
A
market forces (supply and demand) determining the conditions of the market via the price mechanism
2
Q
what is social welfare
A
consumer surplus + producer surplus
3
Q
what does market failure result in
A
allocation inefficiency
4
Q
when does market failure occur
A
whenever the free market fails to allocate scarce resources in a way that maximises social welfare (the welfare maximising point); whenever there is market failure there is a welfare loss
5
Q
what forms does market failure take?
A
- overallocation
- underallocation
- missing market
