Market failure

Question 1

3 types

Answer 1

1. externalities
2. public goods
3. information gaps

Question 2

externalities

Answer 2

spill over
third party
economy activity
outside market transaction

they are the (negative / positive) spill-over effects on a third party resulting form an economy activity outside a market transaction

Question 3

private _

Answer 3

incurred by an individual or firm
result of economic activity
internal to market transaction
taken into account by price mechanism

the cost / benefit incurred by an individual or firm as a result of an economic activity which are internal to a market transaction and therefore taken into account by the price mechanism

Question 4

government failure

Answer 4

when government intervention to correct market failure leads to no change or net reduction in social welfare

Question 5

government intervention

Answer 5

to correct market failure so markets work more effecienly and less welfare is lost

Question 6

negative externalities in production

Answer 6

1. two supply curves - bottom one is MPC
2. demand curve is MPB = MSB
3. where MPC meets MPB = qe (free market)
4. when qe meets MSC = triangle of area of welfare lost
5. y = costs, benefits / x= output

Question 7

positive externalities in consumption

Answer 7

1. two demand curves - bottom one is MPB
2. supply curve is MPC = MSC
3. where MPB meets MPC= qe (free market)
4. when qe meets MSB = triangle of area of welfare lost
5. y = costs, benefits / x= output

Question 8

public good

Answer 8

non excludable non rivalrous

Question 9

GOV FAILURE

Answer 9

Inadequate info 
Cost and opportunity cost
Administration failure
Unintened consequences
Self interest
Expertise

Question 10

gov intervention

Answer 10

indirect tax
subsidies
maximum price
minimum price
tradable pollution permits
state provision of information
regulations