Market Failure Flashcards
What is the definition of a market failure?
Where the market mechanism fails to allocate resources efficiently.
What is allocative efficiency?
Goods provided to best suit the consumer wants and needs
What is dynamic (technical) efficiency?
Production of goods and services using the minimum amount of resources.
What is productive efficiency?
Production of goods and services at lowest factor costs and with the fewest resources.
What are the 7 things affecting a market failure?
- Merit goods
- De-merit goods
- Public goods
- Immobility of factors of production
- Equity and efficiency
- Market power
- Externalities
What are merit goods?
Good for people. > education, healthcare
Tend to get under consumed
E.g. if the price of healthcare rises people may not buy it and spread their illness > therefore in long term costs for consumers increases.
What are De-merit goods?
Bad for people > Tobacco, alcohol, illegal drugs
Tend to get over consumed
What are public goods?
Benefit for the public > street lights
Funding is sometimes difficult
Don’t get provided by markets very well
What is immobility of factors of production?
Demand is high but supply doesn’t extend very well > Delivery drivers after Brexit
Equilibrium is harder to reach
Surpluses
Shortages
Regional problems
What is equity and efficiency?
Poverty
Leaving stuff to market forces lead to poverty
What is market power?
A firms ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both.
No competition is bad for markets
Firms can have too much market power
What are the externalities?
Social costs (negative)
Social benefits (Positive)
E.g. pollution
