3.1.6+3.2.3.4-Market failure

Question 1

What is government intervention?

Answer 1

Where governments intervene to correct a market failure

Question 2

What is market failure?

Answer 2

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

Question 3

What is a market system?

Answer 3

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

Question 4

What is misallocation of resources?

Answer 4

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

Question 5

What are anti-competitive practices?

Answer 5

Attempts by firms to restrict competition

Question 5

What are demerit goods?

Answer 5

Goods that are percieved to have a negative impact/affect on society/individuals

Question 6

What are external benefits?

Answer 6

Benefits of production to others outside the firm/individual

Question 7

What are external costs?

Answer 7

Costs of production that have to be paid by someone other than the firm/individual

Question 8

What are externalities?

Answer 8

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

Question 9

What does fit for purpose mean?

Answer 9

Usuable for the purpose it was intended for

Question 10

What are free goods?

Answer 10

Goods that require no resources to make

Question 11

What is a free-rider?

Answer 11

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

Question 12

What are merit goods?

Answer 12

Goods that are percieved to have a positive impact on society

Question 13

What is minumum wage?

Answer 13

The minimum amount per hour a worker can be paid-this varies according to age

Question 14

What are negative externalities?

Answer 14

Negative effects recieved by a third party resulting from a transaction in which they had no direct participation

Question 15

What are positive externalities?

Answer 15

Positive effects recieved by a third party resulting from a transaction in which they had no direct participation

Question 16

What are private benefits?

Answer 16

The benefits to the company/individual of production (profits)

Question 17

What are private costs?

Answer 17

The costs that the company/individual has to pay for production

Question 18

What are public goods?

Answer 18

Goods provided by the government (paid for through taxes) that everyone benefits from

Question 19

What are social benefits?

Answer 19

Private benefits + external benefits

Question 20

What are social costs?

Answer 20

Private costs + external costs

Question 21

What are spill over effects?

Answer 21

The effects one situation has on another

Question 22

What are third parties?

Answer 22

Someone who is not directly involved in the activity-society

Question 23

What is decriminalisation?

Answer 23

Where restrictions are put on buyers or sellers-e.g alchohol

Question 24

What is deregulation?

Answer 24

Removal or reduced government controls

Question 25

What is an embargo?

Answer 25

A ban on the import of a product/products from a certain country

Question 26

What does legalise mean?

Answer 26

Anyone can buy and sell the product or service

Question 27

What is a pollution permit?

Answer 27

Government issued documents that only allow forms to emit a certain amoundt of pollution

Question 28

What is privatisation?

Answer 28

Selling of a company from the state to the private sector

Question 29

What is prohibition?

Answer 29

Banning of buying and selling a particular product or service

Question 30

What is protectionism?

Answer 30

Methods of restricting imports and possibly increasing exports.

Question 31

What are quotas?

Answer 31

Limits on the number of imports of certain products.

Question 32

What does regulated mean?

Answer 32

Industries that are closely controlled by the government

Question 33

What are subsidies?

Answer 33

Money given to industries by the Government to make them more competitive

Question 34

What are tariffs?

Answer 34

Taxes placed on imports

Question 35

Under what circumstances do markets succeed?

Answer 35

• 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

Question 36

What are examples of market failure?

Answer 36

• 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

Question 37

What are the costs of market failure?

Answer 37

• Costs to society
• Impact on quality of life
• Inequality

Question 38

What are methods of government intervention to correct market failure?

Answer 38

• Regulation
• Indirect taxation
• Subsidies
• Government provision
• Information

Question 39

What are the important features of all public goods?

Answer 39

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

Question 40

How can externalities lead to market failure?

Answer 40

If the price mechanism does not take account of the social costs and social benefits of production and consumption