Market And Info Failure Flashcards
Assymetric information
Where one party in an economic transaction has more than the other
Eg a second hand car seller may overvalue a car due to superior info
Symmetrical information
When both parties have identical information
Eg green grosser couldn’t dupe his customers in overpaying for fruit and veg
Provision of public goods
Process of making commodities or services that benefit all memebers of society available or free at a low cost
Problems with provision of public goods
Free rider problem
Firms won’t provide if there isn’t profitability
Govt intervention regular as unregulated markets can see extreme inequality
Information failure
When participants in an economic transaction do not have perfect information
Market failure definition
Inneficient allocation of resources in free market
Marginal social cost and marginal social benefit
MSC= total cost society pays for the production of an additional unit
MSB= total benefit to society from one extra unit of a good
Marginal private cost and marginal private benefit
MPB- The additional utility an individual receives from consuming an extra unit of good or service
MPC- the change in cost that occurs from producing an extra good
Marginal external cost and marginal external benefit
MEC - negative externalities
MEB - positive externalities
Quasi public good
Public goods with an element of both non exludability and non rivalry
Roads for example public goods however some degree of private goods
Free rider problem
People benefitting from goods and services without paying for them
Principal agent problem
Conflict arises from when a group hires a worker to work in best interests , but agent does not
Info failure causing market
Over production and consumption
Under production and consumption
Caused by lack of information
Causes of info failure
Lack of education
Difficult to know the cost and benefit
Moral hazard
Types of good characteristics
Non excludability - enjoy a product whether you contributed or not
Non reject ability - once provided you can’t reject it e.g army defence
Non diminish ability - consumption doesn’t reduce supply of others
Non rivalry - consumption does not reduce amount available to other
