3.1.6

Question 1

What are merit goods?

Answer 1

Goods that are perceived to give positive externalities(beneficial to society).

Question 2

What are demerit goods?

Answer 2

Goods that are perceived to have a negative impact/effect on society/individuals.

Question 3

What resources are not fully mobile?

Answer 3

Labour immobility-geographical and occupational
Capital immobility-what else can you use the Channel tunnel for
Land-cannot be moved to where it is needed.

Question 4

What is a market system?

Answer 4

Where buyers and sellers come together to agree on quantity and prices of goods and services.

Question 5

What are misallocation of resources?

Answer 5

Where land, labour and capital are not used as efficiently as possible.

Question 6

What are external benefits?

Answer 6

Benefit of production to others outside the firm/individual e.g. first aid training

Question 7

What are external costs?

Answer 7

Costs of production that have to be paid by someone other than the firm/individual. e.g. cleaning up pollution

Question 8

What are private benefits?

Answer 8

The benefits to the company/individual of production. e.g. profits

Question 9

What are private costs?

Answer 9

The costs that the company/individual has to pay for production. e.g. labour and raw materials

Question 10

What are social benefits?

Answer 10

Private benefits + external benefits

Question 11

What are social costs?

Answer 11

Private costs + external costs

Question 12

What are third parties?

Answer 12

Effectively society, someone who is not directly involved in the activity.

Question 13

What are spill over effects?

Answer 13

The effects one situation has on another.

Question 14

What are positive externalities

Answer 14

Positive effect received by a third party resulting from a transaction in which they had no direct participation

Question 15

What are negative externalities?

Answer 15

Occurs when a product or decision has a bigger cost to society in relation to its private cost.

Question 16

What are two ways externalities can occur?

Answer 16

Through productions-emissions, use of non-renewable resources, higher employment and hiring ex-convicts

Through consumption-unhealthy foods, drunken behaviour, gym goers and volunteering

Question 17

What is imperfect knowledge?

Answer 17

When consumers do not have adequate technical knowledge due to advertisements. Producers could be unaware of opportunities and they could not accurately measure productivity.

Question 18

Private

Answer 18

(P)-to the individual and the firm in a transaction

Question 19

External

Answer 19

(E)-to a third party(everyone else)

Question 20

Social

Answer 20

(S)-P+E

Question 21

Marginal

Answer 21

The next one

Question 22

What does fit for purpose mean?

Answer 22

Usable for the purpose it was intended for.

Question 23

What are 5 ways for a market to succeed?

Answer 23

Few or no externalities, when they are competitive, good information flows, fit for purpose and genuine choices.

Question 24

What are externalities?

Answer 24

Costs or benefits arising from the decisions of an individual which impact on people other than that individual.

Question 25

What is Anti-competitive pricing?

Answer 25

Attempts by firms to restrict competition.

Question 26

How can market failure be caused?

Answer 26

Knowledge is not perfect, resource immobility, exteralities, monopolies, market being slow to react and severe inequalities in incomes

Question 27

What is market faliure?

Answer 27

Where markets fail to act properly and resources are not allocated efficiently.

Question 28

What is a public good?

Answer 28

Good provided by the government (paid through taxes)that everyone benefits from(street lighting)

Question 29

What are two important features of public goods?

Answer 29

Non-excludability where once the good is supplied it is not possible to stop others from enjoying it. The second one is non-rivalry where if one person consumes the good or service others still can do the same. This means there are large external benefits relative to cost.

Question 30

What is a free rider?

Answer 30

An individual who enjoys the benefits of goods but does not pay for it.

Question 31

What are the six types of economies of scale?

Answer 31

Technical economies, purchasing economies, managerial economies, marketing economies, financial economies and risk bearing economies.