Chapter 10 Government Intervention

Question 0

Complete market failure

Answer 0

Occurs when the market simply does not supply a product at all, resulting in a missing market . E.g. Public gds.

Question 1

Market failure

Answer 1

The free market fails to produce quantities of gds s + s’s that people want at prices reflecting their marginal utilities and occurs when freely functioning markets fails to deliver an efficient allocation of resources

Question 2

Partial market failure

Answer 2

Is where the market exists but contributes to resource misallocation. E.g. ,meritgoods

Question 3

Negative externalities

Answer 3

Costs imposed on third parties not involved with the consumption or production of a good. SC> PC

Question 4

Positive externalities

Answer 4

A positive spillover effect to third parties of a market transaction. SB > PB

Question 5

Pure public goods

Answer 5

Are non rival and non excludable in consumption

Question 6

Quasi public good

Answer 6

A good that has some of the qualities of a public good but does not fully possess the two required characteristics of non rival and non excludability

Question 7

Private good

Answer 7

A good that is bro excludable and rival in consumption

Question 8

Merit good

Answer 8

A merit good is a good or service for which the SB> PB of consumption. A merit good would be under consumer in a free market as individuals do not perceive the benefits obtained from consumption

Question 9

Demerit good

Answer 9

A good that would be over consumed in a free market as it brings less overall benefit to consumers than they realise.

Question 10

Externalities

Answer 10

Third party spillover effects arising from production or consumption of goods and services for which no appropriate compensation is paid for.

Question 11

Cost benefit analysis

Answer 11

Is a technique that attempts to take account of all the costs and benefits of an activity. In other word it rise to quantify both PC and PB as well as indenting hint EC and EB. Cab tends to be used for large, public sector projects, it may be used to rank projects alongside the, real Monetary cost to the govt; govt faces the problem of an opportunity cost and is unable to put kidney into all projects due to the need to keep low borrowing requirements,

Question 12

Marginal private cost

Answer 12

The cost to an individual or firm of an economic transaction

Question 13

Marginal external cost

Answer 13

The spillover cost to third parties of an economic transaction

Question 14

Marginal social cost

Answer 14

The full cost to society of an economic transaction, including private and external costs.

Question 15

Marginal private benefit

Answer 15

The benefit to an individual or a firm of an economic transaction

Question 16

Marginal external benefit

Answer 16

The spillover benefit to third parties of an economic transaction