Lesson 30 - unit 6 Flashcards
What is market failure?
When the market fails to allocate resources efficiently.
How does monopoly cause market failure?
By not having to set its price as a result of competition, then goods and services won’t be distributed efficiently to the widest number of people.
How do taxes cause market failure?
It increases the cost of goods and decreases demand.
How do price and quantity regulations cause market failure?
It interferes with market operations and causes inefficiencies in supply and demand.
How do externalities cause market failure?
They affect people who aren’t the buyers and sellers, and they aren’t part of production and aren’t paid for by the buyers.
Why does a failure to enforce property rights cause market failure?
A lack of protection of property rights discourages people from buying goods and services.
What are public goods?
Goods and services that can be used by more than one person at a time.
In what sense do public goods reflect market failure?
Some people who use public goods do not pay for them and some people who pay for public goods funded by taxes do not use them.
How did communist central planners create market failure?
By running a top-down economy, some industries had a surplus, while others lacked materials, because the economy was not based on what consumers wanted.
What do we need to keep in mind regarding markets and an uncertain economy?
- the economy is always uncertain
- all markets eventually fail
- we can’t take the economy with us when we die
- wealth is a poor source of security.
