Market Failure Flashcards
(‘What is market failure?’
‘Market failure occurs when there is an inefficient allocation of resources in a free market.’)
(‘What are merit goods?’
‘Merit goods are those that people tend to under-consume without government intervention
(‘Why are merit goods under-provided in a free market?’
‘Private sectors often fail to provide sufficient merit goods due to a lack of profit incentives
(‘How does the government address the under-provision of merit goods?’
‘The government subsidizes or provides merit goods for free
(‘What are public goods?’
‘Public goods are goods or services that can be consumed by multiple individuals simultaneously without reducing the availability to others
(‘What is the free-rider problem?’
‘The free-rider problem occurs when individuals consume public goods without paying for them
(‘How does the government ensure the provision of public goods?’
‘Public goods are provided and funded by the government through general taxation to prevent market failure.’)
(‘What are externalities?’
‘Externalities are costs or benefits of an economic activity that affect third parties and are not reflected in market prices.’)
(‘What is an example of a negative externality?’
‘Examples include pollution
(‘How does the government address negative externalities?’
‘The government uses legislation
(‘What are restricted competition and monopolies?’
‘Restricted competition occurs when a market has few sellers or buyers
(‘Why do monopolies cause market failure?’
‘Monopolies restrict supply and charge higher prices
(‘How does the government regulate monopolies?’
‘Through regulators like the Competition and Markets Authority (CMA) and legislation to ensure fair competition.’)
(‘What is the role of the government in preventing market failure?’
‘The government intervenes using legislation
(‘What is allocative inefficiency?’
‘Allocative inefficiency occurs when resources are not distributed in a way that maximizes consumer satisfaction
