market failure

Question 1

what is a merit good

Answer 1

goods that have a good effect on the consumer/society, a positive externality

Question 2

what is a demerit good

Answer 2

goods that have a negative effect on the consumer/society, a negative externality

Question 3

what is market failure

Answer 3

misallocation of resources

Question 4

what can market failure be caused by

Answer 4

existence of monopolies and oligopolies, collusion, external costs outweighing benefits, price fixing, abnormal profits, rigging of markets, barriers to entry, imperfect knowledge, resource immobility

Question 5

when do market succeed

Answer 5

when there are few/no externalities, competitive markets, clear market signals/incentives, good information flows, genuine choices, fit for purpose

Question 6

what are public goods

Answer 6

goods for which its difficult to identify who it benefits most

Question 7

features of a public good

Answer 7

non-excludability (if one person gets it, others can free ride off it), non-rivalry (large external benefits as others can enjoy it)

Question 8

what are the measures to correct market failure

Answer 8

subsidies, change tax, split non-competitive markets, state provision, extension of property rights, regulation, prohibition, positive discrimination, redistribution of income

Question 9

why are taxes good

Answer 9

revenue generation for government, income redistribution, market stabilisation, behavioural incentives, internalising externalities