Market Failure Flashcards

1
Q

Define market failure

A

Occurs when the free market, left alone, fails to deliver an efficient allocation of resources. This results in a loss of economic welfare

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2
Q

Define consumer surplus

A

The difference between the total amount that consumers are willing and able to pay for a good or service and the total they actually do pay

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3
Q

Define producer surplus

A

The difference between the total amount producers are able and willing to supply a good for and the price they actually recieve

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4
Q

When does an increase in consumer surplus occur?

A

Increase in supply

Decrease in demand

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5
Q

When does a decrease in consumer surplus occur?

A

Decrease in supply

Increase in demand

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6
Q

Define missing market?

A

A situation in which there is no market because the functions of prices have broken down-Derieves from market failure

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7
Q

What are the main causes of Market Failure?

A
Positive and Negative externalities
Merit and Demerit goods
Public goods
Monoploys
Inequalities in the distribution of income
Factor immobility
Imperfect information
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8
Q

Define public good

A

A good that posseses the characteristics of non-excludability, non rivalry in consumption and its non rejectable

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9
Q

Define non-excludability

A

Once provided, no person can be excluded from benefitting

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10
Q

Define non-rivalry

A

Consumption of the good by one person does not reducd the amount available for another person

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11
Q

Define non rejectable

A

If a public good is provided, we cannot avoid it

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12
Q

Examples of public goods

A

Public fireworks

Clean air

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13
Q

Define quasi public good

A

A good that has some characteristics of a public good but not all of them

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14
Q

Define private good

A

A good that is both excludable, rejectable and rival in consumption

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15
Q

Define externalities

A

Costs or benefits that spillover to third parties external to a market transation

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16
Q

Define positive externality

A

A positive spillover effect to third parties of a market transaction; social benefits exceed private benefits