Market Failure

Question 0

Diseconomies of scale

Answer 0

Factors that increase the average cost of production as a firm expands output, therefore reduces productive efficiency
E.g. Lack of motivation/ poor communication

Question 1

Economies of scale

Answer 1

Factors that reduce the average costs if production as a firm expands output, therefore increases productive efficiency
E.g. Hiring specialist managers

Question 2

Internal economy of scale example

Answer 2

Specialisation division of labour)
Technical (improving technology)
Purchasing (bulk buying)

Question 3

External economies of scale

Answer 3

Large geographical concentration within industry, increases mobility of labour…
E.g. West Yorkshire- wool

Question 4

LRAC

Answer 4

Long run average costs, diagram used for economies/ diseconomies of scale

Question 5

Perfect competition

Answer 5

Large number of buyers
Nobody is large enough to affect the market price on their own
No barriers to entry
Perfect knowledge

Question 6

Monopoly

Answer 6

1 dominant firm in the market. Example of imperfect competition

Question 7

Government failure

Answer 7

Occurs when governments intervene in markets with the intention of increasing welfare but actually cause welfare to decrease

Question 8

Administrative costs of market intervention

Answer 8

Reason for government failure, the cost of the scheme of intervention is greater than the welfare benefit produced.
E.g. Fining mobile phones for drivers costs more (policing) than the benefit created

Question 9

Market distortions

Answer 9

Reason for government failure, alters people’s demand.

E.g. If beef prices are high (due to guaranteed prices) the demand for pork could increase