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Microeconomics > Market Failure > Flashcards

Market Failure Flashcards

1
Q

What is the economic problem?

A

How do we satisfy unlimited needs and wants with finite resources

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2
Q

Markets operate based on…

A

Markets operate based on the principle of maximisation.

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3
Q

What do producers want to maximise?

A

Profit

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4
Q

What do consumers want to maximise?

A

Utility

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5
Q

What do governments want to maximise?

A

Welfare

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6
Q

Market Failure definition

A

Market outcomes lead to a misallocation of resources

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7
Q

What is a misallocation of resources?

A

Where resources are not used to maximise society’s welfare

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8
Q

What are the two types of market failure?

A

• Complete market failure

• Partial market failure

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9
Q

Complete Market Failure definition

A

There is no market available for a good which society regards as desirable

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10
Q

Complete market failure results in…

A

Complete market failure results in missing markets

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11
Q

Partial Market Failure definition

A

A market is available but the market output and price is not optimal for society’s welfare

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12
Q

Partial market failure means…

A

Partial market failure means too much/little of a good is being produced and consumed.

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13
Q

Monopolists seek to…

A

Monopolists seek to increase prices by restricting output

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14
Q

What are private goods two characteristics?

A

• Excludability

• Rivalry

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15
Q

What is excludability?

A

The owners of a good have property rights which allows them to prevent others consuming their good

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16
Q

What is rivalry?

A

Consumption of a good reduces the mount of the good that others can consume

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17
Q

What two characteristics do public goods have?

A

• Non-excludability

• Non-rivalry

18
Q

What is Non-Excludability?

A

It is difficult or impossible to prevent others from consuming a good

19
Q

What is Non-Rivalry?

A

Consumption of a good has little or no effect on the amount left for others to consume

20
Q

Example of a private good?

A

Pizza

21
Q

Example of a public good?

A

Lighthouse

22
Q

What affects the provision of public goods?

A

The market provision of public goods is often prevented by free-riders

23
Q

What are Non-pure public goods?

A

Non-pure public goods have some but not all of the characteristics of a public good.

e.g Excludable but non-rival

24
Q

What is the solution to the complete market failure caused by public goods?

A

State Provision

e.g Government pays for army & roads

25
Q

What are internal costs/benefits?

A

The costs / benefits incurred / gained by the economic agent for producing or consuming a product.

26
Q

Private costs = ?

A

Private costs = Internal costs

27
Q

Private benefits = ?

A

Private benefits = Internal benefits

28
Q

Whether consuming or producing a product is good for an agent will depend on what?

A

Whether consuming or producing a product is good for an agent will depend on whether the private benefits are larger than the private costs.

29
Q

What are external costs/benefits?

A

The costs / benefits incurred / gained by other economic agents in society for producing or consuming a product.

30
Q

Social costs = ?

A

Social costs = Internal costs + External costs

31
Q

Social benefits = ?

A

Social benefits = Internal benefits + External benefits

32
Q

Whether consuming or producing a product for society will depend on what?

A

Whether consuming or producing a product for society will depend on whether the social benefits are larger than the social costs.

33
Q

Individual decisions are…

A

Individual decisions are based on private costs and benefits

34
Q

Social welfare is maximised by…

A

Social welfare is maximised by weighing up social costs and benefits

35
Q

What are externalities?

A

External costs and benefits affect society but are not considered by the decision maker

36
Q

What is a MERIT GOOD?

A

A good which is under provided by a market

37
Q

What is a DEMERIT GOOD?

A

A good which is over provided by a market

38
Q

Why might foods be over or under provided?

A

• Externalties
• Imperfect Information

39
Q

What is value judgment?

A

A decision on an issue which has to be based on option as there is no correct answer.

40
Q

What is ‘THE MARGIN’?

A

The margin is a concept which refers to the next unit or item.

It considers what would happen if the variable increased or decreased by one unit

Microeconomics (14 decks)

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