lesson 11- market failure Flashcards
what is market failure
failure of the market to allocate resources in the most efficient manner
how are externalities an example of market failure
an effect on a third party from a decision that has been made
how are (de)merit goods an example of market failure
merit goods are good for you, but underprovided in a free market
demerit goods are bad for you, and overprovided in a free market
how are monopolies an example of market failure
one big firm in the industry, so there is no competition, and prices rise massively
how is poverty and inequality an example of market failure
people cant afford necessities,
unequal distribution of wealth/ income
how is information failure an example of market failure
information is inaccurate, incomplete, uncertain or misunderstood so we make the wrong decisions
how are public goods an example of market failure
they would not be provided by the market due to non excludability (person paying cant prevent other people from benefitting)
and non rivalry ( you can use it at the same time as someone else)
how can governments intervene
(strips)
subsidy
tax
regulation
information (publicize a
effect of a demerit
/merit good)
pollution permits (allow a
certain level pf pollution,
under pollution allows
firms to sell permits to
others)
state provision
(government provides
merit goods)
what are non rival goods
A good that can be consumed or possessed by multiple users
what are non excludable goods
products that cannot exclude a certain individual or group of individuals from using them
what are quasi public goods
non rival up to a point
-e.g. roads
what is complete market failure/missing market
governments provide public goods because no one else will
what is the free rider problem
people benefit without paying for something
what is the tragedy of the commons
overuse of a common resource
what are the causes of imperfect information
misunderstanding the true costs or benefits of a product
-uncertainty about costs/benefits
-complex info
-inaccurate or misleading info
-addiction
what is asymmetric information
supplier knows more than the consumer
what is a moral hazard
some form of insurance means you take unnecessary risks
