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Economics Unit 1 > Market Failure > Flashcards

Market Failure Flashcards

1
Q

When does market failure occur?

A

When there is a misallocation of resources in a free market

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2
Q

What is partial market failure?

A

A market exists, but it contributes to a misallocation of resources

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3
Q

What is complete market failure?

A

There is a missing market

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4
Q

What are the reasons for market failure? (8)

A 
Public goods
Merit goods
Demerit goods
Positive externalities
Negative externalities
Monopolies
Inequality
Immobility of factors of production
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5
Q

What is a public good?

A

Will not be provided in a free market. Non-rivalry and non-excludable

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6
Q

What is a private good?

A

Will be provided in a free market. Rivalry and excludable

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7
Q

What is the free rider problem?

A

Individuals are able to consume the good by paying nothing towards the cost

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8
Q

How do public goods cause market failure?

A

If left to the free market, the good will not be provided

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9
Q

What is a merit good?

A

A good that possess positive externailities. People often under estimate the social benefits

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10
Q

How do merit goods cause market failure?

A

Generally over priced and under consumed

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11
Q

What is a demerit good?

A

A good that possess negative externailities People often under estimate the social costs

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12
Q

What are positive externalities?

A

A positive spill over effect to a third party member

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13
Q

How do positive externalities cause market failure?

A

Social benefit > Private benefit

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14
Q

What are negative externalities?

A

A negative spill over effect to a third party member

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15
Q

How do negative externalities cause market failure?

A

Social cost > Private cost

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16
Q

What is a monopoly?

A

A firm that has 25% or more market share

17
Q

How does a monopoly cause market failure?

A

High prices, cause a barrier to entry

18
Q

What are the problems with monopolies? (4)

A

Higher prices
Productive inefficiency
Barriers to entry
Product differentiation

19
Q

What are the benefits associated with monopolies? (3)

A

Economies of scale
Global competition
Research and development

20
Q

What is inequality?

A

Unfair distribution of income/wealth among a population

21
Q

How does inequality cause market failure?

A

People with lower incomes may turn to the government for help

22
Q

What are the reasons for inequality? (2)

A

Rising property values

Rising number of people on benefits

23
Q

How does the immobility of factors of production cause market failure?

A

Fails to provide an efficient allocation of resources

24
Q

What are the 2 main types of factor immobility?

A

Geographical and Occupational

25
Q

What is the equation of social costs?

A

Private cost + External cost

26
Q

What is the equation of social benefits?

A

Private benefit + External benefit

Economics Unit 1 (12 decks)

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