Market Failure Flashcards
What is a free market
where buyers meet suppliers to exchange goods and services free from govt intervention
What is microeconomic equilibrium
where demand equals supply
what does market clearing refer too
Where there is no excess demand or supply in a economy
What is allocative efficiency
Where resources are perfectly following consumer demand
What is the acronym for free market price mechanisms
ARSI
What does ARSI stand for
A llocate scarce resources efficiently
R ation scarce resources
S ignal excess d or s
I ncentive producers
What factors cause a market equilibrium shift in Demand
Production
Advertising
Cost of substitutes
Interest
Fashion
Inflation
cost of complements
What factors casue a market equilibrium shift in supply
Productivity
Indirect taxation
No of firms
Technology
Subsidies
Weather
Cost of production
price mechanism and excess supply
1) prices will fall signalling excess supply
2) firms decrease output
3) Ration to encourage D of other g/s
4) Allocative efficiency
Free market failure
fails to allocate scarce resources at socially optimum levels of output
what are types of market failure
Negative externalities
Positive externalities
demerit goods
public goods
income inequality
monopoly power
what is deadweight loss
consequence of economic inefficiency occurs when market is not allocative efficient
