Market failure pt2

Question 1

Merit and demerit goods market failure

Answer 1

Sometimes consumers are not rational as they do not always have full information so incorrect resources may be allocated

Question 2

Monopoly market failure

Answer 2

Some firms experience low competition and so can set prices very high to cause inefficient allocation of resources in that market.

Question 3

Income

Answer 3

Flow of money per period of time e.g. £200 a week. Needed to buy goods/services in the market

Question 4

Wealth

Answer 4

Stock at any point in time e.g. £150,000

Question 5

Inequalities market failure

Answer 5

Some consumers may consume less due to income levels and these may lead to inefficiencies in certain markets

Question 6

Factors of production immobility market failure

Answer 6

Some workers not being able to move due to lack of skill and not being able to move around can restrict employment opportunities

Question 7

Asymmetric information

Answer 7

One party has more knowledge than the other, unequal information

Question 8

If gold is considered scarce, how could rationing (as a function of price) help with this?

Answer 8

Reduces demand by setting price high and allocates resources to consumers that are willing to pay the higher price