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MS STONE ECONOMICS > Market Failures > Flashcards

Market Failures Flashcards

1
Q

What is consumer surplus?

A

Measure of welfare that people gain from consuming goods and services

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2
Q

What is producer surplus?

A

The measure of the welfare producers gain from producing the goods and services

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3
Q

What is a value judgment?

A

Statements or opinions expressed that are not tested or cannot be verified and depend very much on the views of the individual and the values they hold

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4
Q

What is a normative statement?

A

Opinions that require value judgements to be made

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5
Q

What is a positive statement?

A

Statements that CAN BE TESTED against real world data

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6
Q

What are the 4 economic resources?

A
  • Land
  • Labour
  • capital
  • enterprise
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7
Q

What is capital?

A

Stock of goods used to make goods and services eg-machinery / equipment / tools

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8
Q

What is the economic problem?

A
  • Resources are scarce
  • Wants are infinite
  • Economics is the study of the allocation of resources in society
  • requires trade offs / opportunity costs
  • decisions are made on rationality
  • rationality means maximising own welfare
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9
Q

What is an opportunity cost?

A

The loss of the next best alternative

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10
Q

What is the production possibility boundary?

A

Indicates the maximum possible output that can be achieved given a fixed set of resources in technology in a particular time period
- shows capacity, greatest productivity

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11
Q

What factors shift PPB to the right?

A
  • Investment in new technology
  • introduction of new resources such as minerals
  • increased labour supply through the increase in population and migration
  • improvements in human capital through education and training
  • Increased productivity.
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12
Q

What factors shift PPB to the left?

A
  • Emigration
  • war
  • disease
  • disaster
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13
Q

What is productive efficiency?

A
  • Achieved in an economy when it is not possible to make anyone better off without making someone worse off
  • you cannot produce more of one good without making less of another
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14
Q

What is allocative efficiency?

A

Occurs when the available economic resources ere used to produce the combination of goods and services that best matches peoples tastes and preferences

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15
Q

What is excess supply?

A

When quantity supplied at a particular price is greater than QD, there is a disequilibrium

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16
Q

What is a minimum price?

A

A price floor below which the price of a good service is not allowed to decrease eg min wage

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17
Q

What is market failure?

A

Occurs when the free market, left alone, fails to deliver an efficient allocation of resources

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18
Q

What is partial market failure?

A

Where a market exists but contributes to misallocation

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19
Q

What is complete market failure?

A

Results in a missing market

20
Q

What is a missing market?

A

A situation in which there is no market because the functions of price have broken down

21
Q

What is a free market?

A

One with no govt intervention

22
Q

What are the main causes of market failure? (7 market failures)

A
  • Positive and negative externalities
  • merit and demerit goods
  • Public goods
  • Monopoly
  • factor immobility
  • inequalities
  • imperfect information
23
Q

What is a public good?

A

A good that possesses the characteristic of non-rivalry in consumption non- excludability , non - rejectable

24
Q

What is non-excludability?

A

Once provided no person can be excluded from benefitting
- non payers can enjoy the benefits of consumption at no financial costs (free rider)

25
Q

What is non -rivalry?

A

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

26
Q

What is an externality?

A

Costs or benefits that spill over to third parties external to a market transaction

27
Q

What is a positive externality?

A

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

28
Q

What is a negative externality?

A

A negative spillover effect to third parties of a market transaction; social costs exceed private costs

29
Q

What is a marginal private cost?

A

The cost to a individual or firm of an economic transaction

30
Q

What is a marginal external cost?

A

The spill over cost to third parties of an economic transaction

31
Q

What is a marginal social cost?

A

The full cost to society of an economic transaction. Including private and external costs

32
Q

What is marginal private benefit?

A

The benefit to an individual or firm of an economic transaction

33
Q

What is marginal external benefit?

A

The spillover benefit to third parties of an economic transaction

34
Q

What is marginal social benefit?

A

Full benefit of an economic transaction including private and external benefit

35
Q

What is a merit good?

A

A good that would be under consumed in a free market as individuals do not fully perceive the benefits obtained from consumption

36
Q

What is a demerit good?

A

A good that is over consumed in a free market

37
Q

What is a direct tax?

A

Tax on income

38
Q

What is an indirect tax?

A

A tax on spending

39
Q

What is a subsidy?

A

Any form of government support given to firms or consumers

40
Q

What are 3 evaluations for subsidising producers?

A
  • costly to government due to opportunity costs
  • effectiveness is limited by ped
  • disincentivises firm to be efficient
  • costly to implement and monitor
41
Q

What are 3 evaluations for subsidising consumers?

A
  • Opportunity costs
  • effectiveness is limited by ped
  • unintended consequence of higher price
  • imperfect info (size of externality)
42
Q

What are the 7 market failures?

A
  • merit and demerit goods
  • inequalities
  • immobility of factors of production
  • externalities
  • monopoly’s
  • public goods
  • imperfect information
43
Q

What is asymmetric information?

A

When one party has more information than the other

44
Q

What is imperfect information?

A

Misinformation / false information

45
Q

What is occupational immobility?

A

As patterns of demand and employment change, many workers find it difficult to easily secure new jobs since they may lack the necessary skills

46
Q

What is income?

A

Money from work

47
Q

What is wealth?

A

Value of assets

MS STONE ECONOMICS (12 decks)

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