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Economics > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

Functions of price

A 
Price signalling (information)
Price rationing (best of best)
Price allocation (Change market) 
Price incentive (What to buy)
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2
Q

Advantages and disadvantages of price mechanism

A
  • Promoting consumer sovereignty
  • Efficient allocation of resources
  • Efficient allocation outcome
  • Monopoly producer sovereignty
  • Manipulation imperfect information
  • Market failure can occur
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3
Q

Why pro free market economists believe that gov intervention works badly

A

Because can lead to gov failure

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4
Q

Define of market failure

A

Market mechanism leads to misapplication of resources in the economy, completely not providing the good or wrong amount

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5
Q

Define complete market failure

A

Market fails to function at all and missing market occurs

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6
Q

Define missing market

A

No market because functions of price have broken down

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7
Q

Define partial market failure

A

Does function, but provides the wrong quantity of a good or service resulting in resource miss allocation

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8
Q

Define private good

A
  • Excludable (if you don’t pay you don’t get)

- Rival (one person can eat to stop you from eating for eg)

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9
Q

Define public good

A
  • Non rival (cant stop from having)

- Non excludable (limitless)

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10
Q

Example of public and private good

A

Public: beam from lighthouse
Private: apple

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11
Q

Define quasi public good

A

Good that is not fully non rival and not fully non excludable

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12
Q

Significance of technological change with public goods

A

Roads having to pay now charge, congestion charge

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13
Q

Define positive and negative consumption and production externalities

A

Positive
Benefit for third party from production or consumption
Negative
Cost for third party from production or consumption

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14
Q

Example of the externalities

A

PP - Clean water from factory
PC - Pretty view
NP - Pollution
NC - Second hand smoking

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15
Q

Define externalities

A

Public good or bad of an external cost or benefit dumped onto a third party outside of the market

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16
Q

Explain the free rider problem

A

Someone benefitting without paying as a result of non excludability such as a pretty view

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17
Q

Why do externalities lead to the wrong quantity produced

A

Not true cost as dumped onto the third party
Negative : too cheap
Positive : too expensive

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18
Q

How is pollution controlled

A

Pollution permits

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19
Q

Private benefit maximisation

A

MPB=MPC

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20
Q

Social benefit maximisation

A

MSB=MSC

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21
Q

Equation for social benefit

A

Marginal social benefit= marginal private benefit + marginal external benefit

22
Q

Equation for social cost

A

Marginal social cost = marginal private cost + marginal external cost

23
Q

Draw all the externality graphs

A

…

24
Q

What does the deadweight welfare loss show

A

Loss of welfare at free market price

25
Q

Why can allocative efficiency not occur when there are negative externalities

A

Because MC is not correctly represented. Market mechanism fails to achieve an allocativyly efficient outcome

26
Q

Define merit good

A

Under provided due to incorrect information, social benefits exceed private benefit. Example is NHS

27
Q

Define social cost

A

Social cost= private cost + external cost

28
Q

Deadweight welfare loss in merit goods

A

Does not portray real benefit

29
Q

Define demerit good

A

Social costs exceed private cost. Over consumed. Information failure

30
Q

What is meant by merit and demerit goods and value judgements

A

Value judgements are required to understand if a good is merit or demerit

31
Q

Why existence of monopolies lead to market failure

A

Due to restricting output and raising price

32
Q

Why immobility of factors of production lead to market failure

A

Waste of scarce resources and unemployment

33
Q

Define competitive policy

A

Aims to make goods markets more competitive, towards monopolies

34
Q

monopoly control policies

A
  • Compulsory breaking up of monopolies
  • Use of price controls to restrict monopoly abuse
  • Taxing monopoly profits
  • Rate of return regulation
  • State ownership of monopoly
  • Removal of barriers to entry
35
Q

Define public ownership

A

Ownership of industries firms and other assets by central gov or local gov

36
Q

Arguements for privatisation (Public to private)

A
  • Revenue raising
  • Reduce gov spending
  • Promotion of competition
  • Promotion of efficiency
37
Q

Arguments against privatisation (Public to private)

A
  • Monopoly abuse
  • Short termism over long termism (under investment)
  • Selling family silver
  • Free lunch syndrome (believing state owned assets have been sold too cheaply)
38
Q

Define regulation

A

Imposition of rules and other constraints which restrict freedoms of economic action

39
Q

Two types of regulation

A

External -

Self - self or voluntary

40
Q

Why is regulation necessary

A

Protect

  • Consumers from harmful products
  • Children and old people
  • People from self hard
  • Exploitation of labourers
41
Q

Define deregulation

A

Removing a previously imposed regulation

42
Q

Two reasons for deregulation

A
  • Promotion of competition

- Removal of unnecessary costs

43
Q

Define regulatory capture

A

When regulatory agencies act in the interest of regulated firms rather than consumers

44
Q

Difference between pro free market economists and interventionists

A

Free market- no gov intervention

Interventionist- Markets and uncompetitive and gov knows better

45
Q

Ways a gov can intervene

A 
Remove market 
Provide nudges (force firms to generate positive externalities and remove negative externalities)
46
Q

What can the gov do directly to markets

A

Subsidies

Taxation

47
Q

Draw price ceiling and what is it

A

Price above its illegal to trade

…

48
Q

Draw price floor and what is it

A

Price below which it is illegal to trade

…

49
Q

Define gov failure

A

Occurs when gov intervention reduces economic welfare leading to an allocation of resources worse than the free market outcome

50
Q

Reasons for gov failure

A
  • Pursuit of conflicting policy objectives
  • Cost to taxpayers
  • Law of unintended consequences
51
Q

What could price ceiling and price floors cause due to excess demand

A

Black market(rising price)

Economics (15 decks)

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