Market Failure Flashcards
what is the deadweight loss?
loss of welfare within a market
how do you draw deadweight loss?
its an arrow pointing towards the socially optimum equilibrium
what is a negative production externality?
overproduction of a de merit good
what is market failure?
when the free market fails to allocate scarce resources to the socially optimum level of output, (misallocation of resources)
what type of market failure is externalities?
self interest
what type of market failure is merit and demerit goods?
information failure
what type of market failure are public goods?
free rider problem, firms being profit motivated?
what type of market failure is common access resources?
self interest (tragedy of the commons)
what type of market failure is inequality
inequity - unfairness
explain the market failure of monopolies
high barriers to entry meaning only one dominant firm exploiting consumers
explain factor immobility
where supply can’t increase as a result of a change in demand
what are two ways to deal with market failure?
subsidies and taxation and regulation
what are some type of regulation
bans, caps, limits and compulsary with strong control and punishment
what does regulation do?
incentives to change behaviour, solves issues in free market and makes allocative efficiency - welfare gain
what are the problems with regulation?
costs, black markets, equity and unintended consequences
