8 - Market Mechanism and Market Failure Definitions

Question 1

Market Failure

Answer 1

When the market mechanism leads to a misallocation of resources in an economy, either completely failing to provide a good or service, or providing the wrong quantity.

Question 2

Complete Market Failure

Answer 2

A market fails to function at all, and a missing market prevails.

Question 3

Partial Market Failure

Answer 3

A market functions, but it delivers the wrong quantity of a good or service.

Question 4

Missing Market

Answer 4

A situation in which there is no market, because the functions of prices have broken down.

Question 5

Private Good

Answer 5

A good which is excludable and rival.

Question 6

Excludable Good

Answer 6

People who don’t want to pay for a good can be excluded from benefitting.

Question 7

Rival Good

Answer 7

When one person consumes a private good, the quantity available to others diminishes.

Question 8

Public Good

Answer 8

A good which is non excludable and non rival.

Question 9

Quasi Public Good

Answer 9

A good which is not fully non rival, where it is impossible to exclude people from using the product.

Question 10

Externality

Answer 10

The consumption of a good causing unintended side effects.

Question 11

Positive Externality

Answer 11

Occurs when consuming a good or service causes a benefit to a third party.

Question 12

Negative Externality

Answer 12

Occurs when consuming or producing a good or service causes a cost to a third party.

Question 13

Private Cost

Answer 13

Any cost that a person or firm pays in order to buy or produce goods or services.

Question 14

Social Benefit

Answer 14

The total benefit to society from consuming a good or service.

Question 15

Private Benefit

Answer 15

The benefit derived by an individual or firm directly involved in a transaction as either a buyer or a seller.

Question 16

Social Cost

Answer 16

The sum of private costs borne from the economic agent, and external costs imposed on others by an activity.

Question 17

Information Failure

Answer 17

Occurs when people have inaccurate information or data, which could lead to wrong choices being made.

Question 18

Environmental Market Failure

Answer 18

Market failure which has an effect on the environment, such as deforestation.

Question 19

Property Rights

Answer 19

Gives the owner or right holder the ability to do with the property what they choose.

Question 20

Tragedy of the Commons

Answer 20

A problem in which each individual is incentivised to act in a way that will be harmful to all individuals.

Question 21

Merit Good

Answer 21

A good that would be under consumed in a free market, as full benefits aren’t fully understood.

Question 22

Demerit Good

Answer 22

A good which has a negative impact on the consumer.

Question 23

Occupational Immobility

Answer 23

The inability of labour to move from one type of job to another.

Question 24

Geographical Immobility

Answer 24

Barriers stopping people moving from one area to another to find work.

Question 25

Asymmetric Information

Answer 25

One party in a transaction being in possession of more information than the other.

Question 26

Indirect Tax

Answer 26

A tax levied on goods or services rather than on an individual company.

Question 27

Subsidy

Answer 27

A benefit given to an individual, business or institution, usually the government.

Question 28

Minimum Price

Answer 28

The minimum legally allowed prices for a good, set by the government.

Question 29

Maximum Price

Answer 29

A limit or cap on a price set by a government or organisation.

Question 30

Regulation

Answer 30

A requirement enforced by the government or a certain industry.

Question 31

Pollution Permits

Answer 31

Regulate allowances, allowing producers to generate pollution.