MARKET FAILURE AND GOVT FAILURE

Question 1

WHAT IS MARKET FAIILURE?

Answer 1

WHEN MARKET FORCES FAIL TO ACHIEVE AN ECONOMICALLY EFFICIENT EQUILIBRIUM.

Question 2

WHAT ARE THE DIFFERENT TYPES OF MARKET FAILURE?

Answer 2

1. IRRATIONAL BEHAVIOUR
2. PUBLIC GOODS
3. EXTERNALITIES
4. IMPERFECT INFO
5. INEQUALITY
6. FACTOR IMMOBILITY
7. MARKET POWER

Question 3

WHAT IS IRRATIONAL BEHAVIOUR?

Answer 3

CONSUMERS DON’T ALWAYS ACT IN THEIR BEST INTERESTS TO MAXIMISE UTILITY.

Question 4

WHAT IS THE PUBLIC GOODS EXPLANATION?

Answer 4

THE PRICE MECHABISM FAILS TO PROVIDE SOME GOODS AND SERVICES E.G STRET LIGHTING

Question 5

WHAT IS THE EXPLANATION FOR EXTERNALITIES?

Answer 5

THE EFFECT ON A 3RD PARTY NOT INVOLVED IN THE ECONOMIC DECISION E.G POLLUTION

Question 6

WHAT IS THE EXPLANATION FOR IMPERFECT INFORMATION?

Answer 6

THERE MAY NOT BE ENOUGH INFO TO MAKE A RATIONAL DECISION.

Question 7

WHAT IS THE EXPLANATION FOR FACTOR IMMOBILITY?

Answer 7

IT MAY BE DIFFICULT TO MAKE FACTORS OF PRODUCTION FROM 1 TYPE OF PRODUCT TO ANITHER

Question 8

WHAT IS THE EXPLANATION FOR MARKET POWER?

Answer 8

IF ONE FIRM HAS TOO MUCH MARKET POWER, IT CAN USE THIS TO EXPLOIT CONSUMERS AND RAISE PRICES.

Question 9

WHAT ARE WAYS THAT THE GOVT CAN INTERVENE WITH MARKET FAILURE?

Answer 9

1. PROVISION OF INFO
2. REGULATION
3. STATE PROVISION
4. TRADEABLE PERMITS
5. MAX PRICES
6. MIN PRICES
7. SUBSIDIES
8. INDIRECT TAXATION
9. NUDGES

Question 10

WHAT IS THE EXPLANATION FOR PROVISION OF INFO?

Answer 10

TO ENSURE CONSUMERS R WELL INFORMED, THE GOVT CAN PUBLISH INFO.

Question 11

WHAT IS THE EXPLANATION FOR REGULATION?

Answer 11

THE GOVT WILL PASS LAWS WHICH ALTER THE PRICE/QUALITY/QUANTITY OF THE PRODUCT AVAILABLE

Question 12

WHAT IS THE EXPLANATION FOR STATE PROVISION?

Answer 12

IF THE MARKET UNDER PROVIDES A GOOD/SERVIXE, THE GOVT CAN DO THIS DIRECTLY.

Question 13

WHAT IS THE EXPLANATION FOR TRADEABLE PERMITS?

Answer 13

FIRMS R GIVEN PERMITS TO POLLUTE WUICH THEY CAN BUY/SELL TO MAKE A PROFIT.

Question 14

WHAT IS THE EXPLANATIOJ FOR MAX PRICES?

Answer 14

IF CONSUMERS CAN’T AFFORD PRODUCTS, THE GOVT MAY LIMIT THE PRICE.

Question 15

WHAT IS THE EXPLANATION FOR MIN PRICES?

Answer 15

IF PRODUCERS R GOING BANKRUPT/TO DISCOURAGE CONSUMPTION, THE GOVT MAY SET A MIN PRICE.

Question 16

WHAT IS THE EXPLANATION FOR SUBSIDIES?

Answer 16

TO ENCOURAGE CONSUMPTION, THE GOVT CAN FUND THE PRODUCTION OF A PRODUCT.

Question 17

WHAT IS THE EXPLANATION FOR INDRECT TAXATION?

Answer 17

TO DISCOURAGE CONSUMPTION, THE GOVT CAN INCREASE THE PRICE OF A PRODUCT.

Question 18

WHAT IS THE EXPLANATION FOR NUDGES?

Answer 18

A PSYCHOLOGICAL TACTIC TO ENCOURAGE CONSUMERS TO MAKE A CHOICE.

Question 19

WHY MAY ECONOMIC AGENTS HAVE IMPERFECT KNOWLEDGE?

Answer 19

1. ASYMMETRIC INFO
2. ADVERSE INFO
3. MORAL HAZARD

Question 20

WHAT IS ASYMMETRIC INFO?

Answer 20

A SITUATION WHERE 1 ECONOMIC AGENT HAS MORE INFO THAN ANOTHER.

Question 21

WHAT IS THE EXPLANATION FOR ASYMMETRIC INFO?

Answer 21

THIS CAN OFTEN LEAD TO CONSUMERS BEING OVERCHARGED OR SOLD A GOOD OF INFERIOR QUALITY AS THEY DON’T KNOW HOW TO ASSESS RHE VALUE OF A PRODUCT.

Question 22

WHAT R EXAMPLES OF ASYMMETRIC INFO?

Answer 22

1. BUYING A HOUSE
2. LOANS
3. MOTs

Question 23

WHAT IS THE EXPLANATION FOR ADVERSE SELECTION?

Answer 23

OCCURS WHEN PARTICIPATION IN THE MARKET IS AFFECTED BY ASYMMETRIC INFO E.G HEALTH INSURES DON’T KNOW IF U R A SMOKER OR NON SMOKER SO OFFER THE AVERAGE PRICE. NON SMOKERS FEEL THAT IT’S TOO EXPENSIVE AND LEAVE THE MARKET PUSHING UP THE PRICE AS ONLY HIGH RISK SMOKERS REMAIN

Question 24

WHAT R EXAMPLES OF ADVERSE SELECTION?

Answer 24

HEALTH INSURANCE
2ND HAND CARS
ALL U CAN EAT BUFFETS

Question 25

WHAT IS THE EXPLANATION FOR MORAL HAZARD?

Answer 25

OCCURS WHEN PEOPLE R LIKELY TO BEHAVE MORE RECKLESSLY BECAUSE THEY HAVE INSURANCE E.G U MAY BE LESS PROTECTIVE OF UR MOBILE PHONE IF IT’S INSURED.

Question 26

WHAT R EXAMPLES OF MORAL HAZARD?

Answer 26

BENEFITS
BANK BAILOUTS
GREEK EUROZONE DEBT
CRASH FOR CASH