3.1.6+3.2.3.4-Market failure Flashcards
What is government intervention?
Where governments intervene to correct a market failure
What is market failure?
Where markets fail to act properly and resources are not allocated efficiently
What is a market system?
Where buyers and sellers come together to agree on quantity and prices of goods and services
What is misallocation of resources?
Where land, labour and capital are not used as efficiently as possible
What are anti-competitive practices?
Attempts by firms to restrict competition
What are demerit goods?
Goods that are percieved to have a negative impact/affect on society/individuals
What are external benefits?
Benefits of production to others outside the firm/individual
What are external costs?
Costs of production that have to be paid by someone other than the firm/individual
What are externalities?
Costs (or benefits) arising from the decisions of an individual which impact on people other than that individual
What does fit for purpose mean?
Usuable for the purpose it was intended for
What are free goods?
Goods that require no resources to make
What is a free-rider?
An individual who enjoys the benefits of goods but does not pay for it
What are merit goods?
Goods that are percieved to have a positive impact on society
What is minumum wage?
The minimum amount per hour a worker can be paid-this varies according to age
What are negative externalities?
Negative effects recieved by a third party resulting from a transaction in which they had no direct participation
What are positive externalities?
Positive effects recieved by a third party resulting from a transaction in which they had no direct participation
What are private benefits?
The benefits to the company/individual of production (profits)
What are private costs?
The costs that the company/individual has to pay for production
What are public goods?
Goods provided by the government (paid for through taxes) that everyone benefits from
What are social benefits?
Private benefits + external benefits
What are social costs?
Private costs + external costs
What are spill over effects?
The effects one situation has on another
What are third parties?
Someone who is not directly involved in the activity-society
What is decriminalisation?
Where restrictions are put on buyers or sellers-e.g alchohol
What is deregulation?
Removal or reduced government controls
What is an embargo?
A ban on the import of a product/products from a certain country
What does legalise mean?
Anyone can buy and sell the product or service
What is a pollution permit?
Government issued documents that only allow forms to emit a certain amoundt of pollution
What is privatisation?
Selling of a company from the state to the private sector
What is prohibition?
Banning of buying and selling a particular product or service
What is protectionism?
Methods of restricting imports and possibly increasing exports.
What are quotas?
Limits on the number of imports of certain products.
What does regulated mean?
Industries that are closely controlled by the government
What are subsidies?
Money given to industries by the Government to make them more competitive
What are tariffs?
Taxes placed on imports
Under what circumstances do markets succeed?
- When there are few or no externalities
- When there is adequate competition
- When there are clear market signals and incentives
- Good information flows
- Genuine choices
- Fit for purpose
What are examples of market failure?
- Knowledge isn’t perfect
- Resource immobility
- Market power-monopolistic behaviour
- Services/goods would or could not be provided in sufficient quantity by the market-slow to react
- Existence of external costs and benefits
- Severe inequality of incomes
What are the costs of market failure?
- Costs to society
- Impact on quality of life
- Inequality
What are methods of government intervention to correct market failure?
- Regulation
- Indirect taxation
- Subsidies
- Government provision
- Information
What are the important features of all public goods?
Non-excludability-once a public good is provided to one person, its not possible to stop others from enjoying it
Non-rivalry (diminishability)-if one person consumers the good or service, others are not prevented from doing the same
How can externalities lead to market failure?
If the price mechanism does not take account of the social costs and social benefits of production and consumption
