Market Failure Flashcards
What is market failure?
When the free market fails to achieve productive efficiency, allocative efficiency or equity.
Free market misallocates resources.
What is complete market failure?
When a market fails to supply any of a good/service which is demanded, creating a “missing market”.
What is partial market failure?
When the market for a good/service exists but is produced at the wrong quantity or price.
Name 4 types of Market failure.
Externalities Under-provision of public goods or merit goods Over-provision of demerit goods Lack of competition (monopoly) Inequality Factor immobility Imperfect market info
Define subsidies.
Government grants paid to producers to encourage increased production of certain goods/services.
Define an externality?
Positive or negative knock-on effects of an economic transaction upon third parties. (Form of market failure)
Define negative externalities in production.
Social cost > private cost.
Define negative externalities in consumption.
Social benefit < private benefit.
Define positive externalities of consumption.
Social benefit > private benefit.
Define positive externalities of production.
Social cost < private cost
Define Monopsony.
A market with a single buyer of labour. (Government and school teachers)
At will point on the monopsony labour market diagram will monopsonists hire at?
Where MRP = MC (labour).
Name the main form of government intervention in a monopsony labour market.
National minimum wage.
Define a national minimum wage.
A statutory minimum wage used to increase the earnings of the low-paid.
When was the national minimum wage introduced in the UK?
1997
