market failure

Question 1

MSB

Answer 1

• The total benefit to the society for producing an extended unit in an economy.
• demand curve
• MSB decrease as output increase because one additional unit of the good bring benefits to fewer people

Question 2

MSC

Answer 2

• The total cost to the society for producing an extended unit in an economy.
• the greater amount produced, the harder it costs to create one more unit ( example oil)

Question 3

market efficient

Answer 3

MSB = msc

Question 4

market not efficient

Answer 4

to much of something is produced. either this too much is a demerit good or merit good

Question 5

demerit good

Answer 5

Goods and services that are considered unhealthy or social undesirable.

Question 6

merit good

Answer 6

Goods and services that are beneficial to the society.

Question 7

market failure

Answer 7

Situation when the allocation of goods and services is not efficient.

Question 8

negative externality of production

Answer 8

The social costs are greater than the private costs

pollution, global warming, lung disease, harm agricultural productivity

Question 9

positive externality of production

Answer 9

The cost for the social sector are less than the private sector
training in company

Question 10

negative eternality of consumption

Answer 10

The private benefit is greater than the social benefit

smoking

Question 11

positive externality of consumption

Answer 11

The social sector will benefit more than the private sector

flower at your house

Question 12

gouvernement response to negative externality

Answer 12

goal : improve market efficiency

• corrective taxes: reduce supply, price increase, reduce Qd
• regulation/ legislation : limit the quantity of a good produced or want in a friendly way, higher cost of prod, lower supply
• banning
• tradable permits : limit the amount, reduce overall cost to society

Question 13

evaluation corrective taxes

Answer 13

• higher cost of production, bad for business
• higher price for consumer, reduced consumer surplus
• ess employment
• loss of competitiveness in global market = people would buy outside

Question 14

evaluation tradable permits

Answer 14

advantage:
- sold off for profit
- clear price for pollution
- limit quantity
- can be easily increase or reduced
disadvantage:
- price too low = incentive to trade
- pressure from producer
- costly and difficult to monitor industries to make sure its right

Question 15

tradable permits definition

Answer 15

A process whereby each country is allocated certain levels of pollution

Question 16

corrective taxes definition

Answer 16

market based tax, the tax increase the cost of producing goods or services generating negative externalities, thus encouraging firms to produce less.

Question 17

banning

Answer 17

To prohibit (an action) or forbid the use of (something), especially by official decree:

Question 18

pigouvian taxes

Answer 18

Tax levied on market activities that generate negative externalities

Question 19

penalties definition

Answer 19

Punishment when there is a void in contract

Question 20

incentives definition

Answer 20

a thing that motivates or encourages one to do something

Question 21

government response to positive externality

Answer 21

• corrective subsidies to producers and to consumers
• government provision
• advertising

Question 22

corrective subsidy

Answer 22

Subsidies by the government that bring the equilibrium closer to the socially optimal point, in a case of market failure.

Question 23

government provision definition

Answer 23

government supplying in necessaries goods.

Question 24

public god def

Answer 24

Goods provided by firms or government that allow anyone to have access to it (Lamp posts, benches, parks)

Question 25

private good def

Answer 25

A product the needs to be purchased in order to have access to it (computer etc)

Question 26

excludable def

Answer 26

People are excluded from using the good unless they pay a price for it.

Question 27

rival in consumption def

Answer 27

A good is rivalrous if the use of it by one person prevents the use of another, i.e pen, computer.

Question 28

free rider problem def

Answer 28

A situation where an individual or a group of individuals consume more than their fair share of common resources or pay less than what is expected

Question 29

common access resource def

Answer 29

Such as water, used by many people. Problems is that there is overuse.

Question 30

tragedy of the commons def

Answer 30

An economic problem in which every individual tries to get the greatest benefit from a given resource. As the demand for the resource overwhelms the supply, every individual who consumes an additional unit directly harms others who can no longer enjoy the benefits.

Question 31

sustainability def

Answer 31

Economic development that is conducted without depletion of natural resources

Question 32

privatization def

Answer 32

The process of giving an industry, place (something that was public, or held by the government) and is given to a private company to be managed.

Question 33

assymetric info def

Answer 33

Asymmetric information is a situation in which one party in a transaction has more or superior information compared to another.

Question 34

averse selection def

Answer 34

Adverse selection is a phenomenon wherein the insurer is confronted with the probability of loss due to risk not factored in at the time of sale.

Question 35

moral hazard def

Answer 35

Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost.

Question 36

abuse of monopoly power def

Answer 36

a monopoly behaving independently of competitive pressures