3.1.6 Flashcards
What are merit goods?
Goods that are perceived to give positive externalities(beneficial to society).
What are demerit goods?
Goods that are perceived to have a negative impact/effect on society/individuals.
What resources are not fully mobile?
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.
What is a market system?
Where buyers and sellers come together to agree on quantity and prices of goods and services.
What are misallocation of resources?
Where land, labour and capital are not used as efficiently as possible.
What are external benefits?
Benefit of production to others outside the firm/individual e.g. first aid training
What are external costs?
Costs of production that have to be paid by someone other than the firm/individual. e.g. cleaning up pollution
What are private benefits?
The benefits to the company/individual of production. e.g. profits
What are private costs?
The costs that the company/individual has to pay for production. e.g. labour and raw materials
What are social benefits?
Private benefits + external benefits
What are social costs?
Private costs + external costs
What are third parties?
Effectively society, someone who is not directly involved in the activity.
What are spill over effects?
The effects one situation has on another.
What are positive externalities
Positive effect received by a third party resulting from a transaction in which they had no direct participation
What are negative externalities?
Occurs when a product or decision has a bigger cost to society in relation to its private cost.
What are two ways externalities can occur?
Through productions-emissions, use of non-renewable resources, higher employment and hiring ex-convicts
Through consumption-unhealthy foods, drunken behaviour, gym goers and volunteering
What is imperfect knowledge?
When consumers do not have adequate technical knowledge due to advertisements. Producers could be unaware of opportunities and they could not accurately measure productivity.
Private
(P)-to the individual and the firm in a transaction
External
(E)-to a third party(everyone else)
Social
(S)-P+E
Marginal
The next one
What does fit for purpose mean?
Usable for the purpose it was intended for.
What are 5 ways for a market to succeed?
Few or no externalities, when they are competitive, good information flows, fit for purpose and genuine choices.
What are externalities?
Costs or benefits arising from the decisions of an individual which impact on people other than that individual.
What is Anti-competitive pricing?
Attempts by firms to restrict competition.
How can market failure be caused?
Knowledge is not perfect, resource immobility, exteralities, monopolies, market being slow to react and severe inequalities in incomes
What is market faliure?
Where markets fail to act properly and resources are not allocated efficiently.
What is a public good?
Good provided by the government (paid through taxes)that everyone benefits from(street lighting)
What are two important features of public goods?
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.
What is a free rider?
An individual who enjoys the benefits of goods but does not pay for it.
What are the six types of economies of scale?
Technical economies, purchasing economies, managerial economies, marketing economies, financial economies and risk bearing economies.
