MARKET FAILURE AND GOV INTERVENTION Flashcards

1
Q

What is market failure

A

Market failure is when the price mechanism or invisible hand leads to a misallocation of resources.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 4 types of market failure

A

public goods
positive externality
negative externality
information gaps

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is meant by private costs

A

A cost to a producer or consumer inside the price mechanism.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is meant by negative externalities

A

Costs which affect third parties outside the price mechanism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Socially efficient equilibrium

A

Where MSC = MSB and society’s welfare is maximised.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Tradable pollution permits

A

Permits which allow firms to pollute up to a certain limit. These permits can then be traded between firms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Minimum price

A

The lowest price a good can be legally sold for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Regulation

A

When the government makes changes to the law to address market failure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Negative consumption externalities

A

When the consumption of a good creates costs to third parties outside the price mechanism.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Negative production externalities

A

When the production of a good creates costs to third parties outside the price mechanism.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Describe what the negative production externality diagram looks like

A

Where MSC is above MPC because we have to add on the external costs. Show diagram

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is meant by a tax internalising a negative production externality

A

To correct a negative production externality, a tax must be set = the size of the external cost between MSC and MPC at Qs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the framework to bang out full marks on a price elasticity of demand question?

A

NASBIT

Necessity or luxury, addiction an habit
substitutes
branding
income
Time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the framework to bang out full marks on a price elasticity of supply question?

A

TEASS
Time
state of Economy
available factors
Spare capacity
Stockpiles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the framework for evaluating externalities

A

OQT

Opposite externalities
Quantify, may be difficult to quantify, cant accurately measure
Time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Within the price mechanism we only consider what kind of costs and benefits

A

Private costs and private benefits

17
Q

When producers and consumers don’t consider the external costs of their actions they end up…

A

Overproducing and overconsuming

18
Q

how can the government prevent this welfare loss from external costs

A

Indirect taxation like specific and ad valorem taxes

19
Q

To fully internalise a negative externality, the size of the tax must be equal to:

A

the external cost at the socially efficient quantity

20
Q

MPC is equal to..

A

Free market supply

21
Q

MPB is equal to

A

Free market demand

22
Q

Describe a diagram that shows the effects of maximum price on a diagram

23
Q

What is maximum price

A

The highest price a good can be legally sold for.

24
Q

What is meant by private benefits

A

A benefit to a consumer inside the price mechanism.

25
Positive production externalities
When the production of a good creates benefits to third parties outside the price mechanism.
26
What is the supply curve equal to to when drawing an externality diagram
Marginal Private Cost, S = MPC
27
What is the demand curve equal to when drawing an externality diagram
Marginal Private Benefit, D = MPB
28
What are the two types of information gaps
Asymmetric information Incomplete information
29
What is asymmetric information
refers to a situation where one party in an economic transaction has more or better information than the other.
30
What is incomplete information
When someone doesn’t have full information about the benefits or costs of their decisions.
31
What is meant by information gaps
When consumers or producers lack the information needed to make an informed decision.