4.3.1 market failure in society Flashcards
When does market failure occur?
When the free market fails to allocate resources to the best interests of society, so there is an inefficient allocation of scarce resources.
What happens to social welfare when there is market failure?
It is not maximised.
What is an externality?
The cost or benefit a third party receives from an economic transaction outside of the market mechanism.
What are negative externalities caused by?
Demerit goods.
Why are demerit goods associated with information failure?
Since consumers are not aware of the long run implications of consuming the good, and are usually overprovided.
What is are 2 examples of demerit goods?
- Alcohol
- Cigarettes
What are positive externalities caused by?
Merit goods.
Why are merit goods also associated with information failure?
Because consumers do not realise the long run benefits to consuming the good and are underprovided in a free market.
What are 2 examples of merit goods?
- Education
- Healthcare
What is geographical immobility?
This refers to the obstacles which prevent labour from moving between areas.
What is occupational immobility?
The obstacles which prevent labour from changing their use.
What is a significant example of occupational immobility in the UK?
The collapse of the mining industry, when workers did not have transferable skills to find other work.
What are the causes of occupational immobility? [3]
- Insufficient education
- Insufficient training
- Insufficient skills
What are the causes of geographical immobility? [4]
- Family + social ties
- Financial costs
- Imperfect market knowledge
- Regional variations in house prices + living costs
What is the flexibility of the labour market?
How willing and able labour is to respond to changes in the conditions of the market.
Why are public goods under provided in a free market?
They are non-excludable (linking to the free-rider problem) and non-rival.
As well as this, it is difficult to measure value consumers get from public goods, and so consumers will undervalue the benefit to pay less but producers overvalue to charge more.
How do high + fast levels of economic growth harm the environment?
Could mean production levels are high, which could use a lot of natural resources.
There could also be deforestation.
What is sustainable development?
When stock of natural resources does not decline over time, allowing needs of the present to be met without compromise the ability of future generations to meet their needs.
