6.1 Market analysis and market failure Flashcards
What is a pricing mechanism?
Forces of supply and demand that determine supply and demand
What is a missing market?
The absence of a market for a good or service
What is partial market failure?
A market does function but delivers the wrong quantity of goods or services
What is complete market failure?
A market fails to function at all and a missing market results
What is a public good?
Non excludable and non rivalry
What is a private good?
Excludable and rivalry
What are property rights?
The exclusive authority to determine how a resource is used
What is the free rider problem?
- Non excludability leads to a situation where not enough customers choose to pay for a good
- Preferring to consume without paying
- The incentive to provide the good then disappears
- The result is a missing market
What is a positive externality?
A benefit that is enjoyed by a third party as a result of an economic transaction
What is a negative externality?
A cost that is imposed on a third party as a result of an economic transaction
How do you calculate MSC?
MPC+MEC
How do you calculate MSB?
MPB+MEB
Why do both positive and negative externalities lead to market failure?
Both negative and positive externalities lead to market failure because the private consumer or producer is not paying for, or receiving, the full cost or benefit of the economic activity.
What is a demerit good?
Private benefits of consumption are greater than the social benefits. The long term private benefits are less than the short term benefits.
What is a merit good?
The social benefits of consumption exceed the private benefits. The long term private benefits of consumption are greater than the short term private benefits.
