market failure

Question 1

market failure

Answer 1

The inability of a market to archive allocative efficiency

Question 2

Externality

Answer 2

This is when the actions of producers and consumers affect third parties that aren’t involved negatively or positively

Question 3

Positive externality

Answer 3

This when the actions of producers and consumers affect third parties positively

Question 4

Negative externality

Answer 4

This when the actions of producers and consumers affect third parties negatively

Question 5

Indirect tax

Answer 5

This is a tax imposed in the price of a good

Question 6

Carbon tax

Answer 6

This is a tax per unit of carbon emission of fossil fuels.

Question 7

Sustainability

Answer 7

Sustainability refers to the ability to meet the needs of the present generation without compromising the ability of future generations to meet their own needs.

Question 8

Demerit goods

Answer 8

This are goods that are considered to be harmful to society

Question 9

Merit goods

Answer 9

This are goods that are considered to have a positive impact to society

Question 10

Pigouvian tax

Answer 10

This is a tax on goods with negative externalities and it aligns the private cost with the social cost of a good

Question 11

tradable permits (cap and trade schemes)

Answer 11

this is when the government decides on what pollution is acceptable and issues permits according to that level.

Question 12

welfare loss aka deadweight loss

Answer 12

this is the loss of the economy’s efficiency due to misallocation of resources.

Question 13

Information failure

Answer 13

This is when information is either unavailable, not clear or simply ignored.

Question 14

Asymmetric information

Answer 14

This is when information isn’t shared equally between two parties ie one party knows more than the other

Question 15

Adverse selection

Answer 15

This is when one party has more information than the other often leading to negative externalities for the party with the less information eg fast food sellers

Question 16

Moral hazard

Answer 16

This is when a party takes greater risks because they know the consequences will be bore by another party. eg driving recklessly because you have insurance

Question 17

overallocation of resources is usually what externality?

Answer 17

negative externality

Question 18

underallocation of resources is usually what externality?

Answer 18

positive externality

Question 19

the 3 market based policies are

Answer 19

carbon tax, indirect tax, tradable permits

Question 20

Marginal private benefit

Answer 20

This is the extra satisfaction got by individuals or firms when consuming more of a good/service

Question 21

Marginal social benefit

Answer 21

this is the extra satisfaction got by society as a whole when consuming more of a good/service.

Question 22

Marginal private cost

Answer 22

this is the extra cost got by individuals or firms when more a good/service is produced.

Question 23

Marginal social cost

Answer 23

this is the extra cost got by society as a whole when more a good/service is produced.

Question 24

Allocative efficiency

Answer 24

This is a situation when resources are allocated to best meet human needs and want. Eg MSB = MSC

Question 25

MSC > MPC

Answer 25

negative production externality

Question 26

MSB < MPB

Answer 26

Negative consumption externality

Question 27

MSB = MSC

Answer 27

Allocative efficiency or socially optimum

Question 28

MSB > MPB

Answer 28

Positive consumption externalities

Question 29

MPC > MSC

Answer 29

Positive production externalities

Question 30

market equilibrium vs socially optimum

Answer 30

Market equilibrium is when the quantity demanded aligns with the quantity supplied; the spillover costs are not reflected int he price of the good while socially optimum is when MSB = MSC

Question 31

draw the ppc and explain it