Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

microeconomics > market failures and Govt Intervention > Flashcards

market failures and Govt Intervention Flashcards

1
Q

what is a market failure

A

when in a free market, without govt intervention, there is a failure to efficiently allocate resources

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

what is a missing market

A

a missing market is when a market doesn’t exist because the functions of price are broken down. it would be pareto efficient but no such market exists

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

what is allocative efficiency

A

when the combination of goods that best suit consumer tastes and preferences are being produced

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

what is complete market failure

A

when a market doesn’t exist at all, there is a missing market

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

what is partial market failure

A

when a market exists but for various reasons such as externalities, the wrong amount of it exists

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

what are the types of market failures

A

public goods, monopolies, imperfect info, factor immobility, externalities, inequality, demerit and merit goods

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

what does the price equilibrium show if there is no market failure

A

maximum social welfare.

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

what is social welfare

A

the sum of producer and consumer surplus

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

what are examples of govt intervention

A

indirect taxes, subsidies, bans, price controls, provisions, regulations

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

what is a public good

A

a good that is non excludable- nobody can be excluded from benefiting, non rival- consumption of one person doesn’t decrease amount available for another, non rejectable- it cannot be avoided/refused

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

what is a quasi public good

A

a good which posseses some of the characteristics of a public good but not all

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

what is a free rider

A

someone who consumes a good without paying

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

what is a negative externality

A

the negative spillover effect to third parties

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

what is an externality

A

the spillover cost or benefit to third parties as a result of consumption and production. msc>mpc

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

whats a positive externality

A

the positive spillover effect onto third parties as a result of a market transaction. msb>mpb

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

what is the marginal external cost

A

the spillover cost to third parties of an economic transaction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is the marginal private cost

A

the cost to individuals or producers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is the marginal social cost

A

the full cost to society of an economic transaction includes private and external costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

draw the negative externalities

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

whats the welfare lost in positive externalities. draw the diagram

A
21
Q

what is a merit good

A

a good that generates positive externalities, ought to be subsidised or free at the point of use and is underconsumed in a free market. this is because of imperfect information

22
Q

what is a demerit good

A

a demerit good is one that is overconsumed in a free market, ought to be taxed and generates negative externalities. customers may be unaware of the negtaive externalities it generates. the social cost of consumption is higher than the private

23
Q

why is there missing markets

A

if the market fails to price the externalities

24
Q

what is excess supply

A

when there is more supply than demand

25
Q

what is a minimum price

A

known as a price floor and is the lowest producers can charge for goods and service

26
Q

draw a price floor

A
27
Q

what is the unwanted consequence of price floors

A

excess supply

28
Q

evaluation of price floors

A

govt will have to buy up the surplus, dependent on the ped of the good as for addicts this wont be as effective, black market, waste of scarce resources as labour will have to be used monitor and manage it

29
Q

what is a price ceiling

A

a price ceiling is a maximum price that firms cannot sell products for more than

30
Q

evaluation of price ceilings

A

cause an excess demand, dependent on ped, suppliers may leave the market which would worsen any shortage, causes opportunity cost as do you want a greater effectiveness but more excess.govt will have to subsidie firms in order to encourage them to produce which can be very politically unpopular

31
Q

how would taxes on a good with a negative externality help

A

by placing a tax, the cost of production would increase, this would result in a fall in supply from s to s1 because at the same cost, less can be produced.this would result in a rise in price equilibrium from p to p1, causing a contraction in quantity demanded as consumers ration consumption at higher prices. contraction from fm to so

32
Q

however the effectiveness of taxes are limited…

A

the extent to which consumption is reduced is dependent on the ped. for smokers, cigarteetes are a necessity with very few substitutes so the demand curve will be inelastic. this means the price rise will lead to a less than proportional fall in consumption from qfm to qso, meaning that this may be less effective for hardened smokers

33
Q

evaluations of taxes

A

lead to a black market, inequality as its effect will differe whether one is rich or poor, depended on ped, we cannot quanitfy the mec due to imperfect info, needs montoring and policing, needs effective consequences

34
Q

what is the incidence of tax

A

the proportion of tax passed on from producer to consumer

35
Q

what is a subsidy

A

a sum of money granted by the state

36
Q

evaluation of subsidy to producer

A

dependent on the ped, imperefect info means we cannot quantify the mec, opportunity cost as costly to implement and money could be used elsewhere, politically unpopular as firms may not want their money going to private profit making firms, may decentivise

37
Q

evaluation of subsidy to consumer

A

dependent on the pes, imperefect info means we cant quantify the mec, opportunity cost, unintentional price increase

38
Q

market imperfections- imperfect info

A

imperfect info means you cannot place a value on the externality and means theres lack of awareness of the full cost or ebnefit to society so a misallocation of resources due to uninformed decisions.

39
Q

market imperfections- factor immobility

A

as patterns of demand and unemployment change, workers find it difficult to easily secure new jobs since they lack the necessary skills

40
Q

market imperfections-monopoly

A

they restrict supply and raise prices causing a misalocation of resources

41
Q

inequalities in distribution of income and wealth

A

its a market failure because not only are there some people without heating and food, the poor can benefit from the rich’s taxes

42
Q

what is the rationale for govt intervention

A

to correct market failures

43
Q

why are both public and private goods provided free

A

they are merit goods so underconsumed in a free market

44
Q

evaluation of state provision

A

places burden on taxes, expensive so has opportunity costs, places govt into deficit when they already have lots already,

45
Q

what is the difference between indirect and direct taxes

A

indiret taxes are taxes which take away from our income in various ways but are not physically deducted from our income like income tax. direct taxes are a direct tax on incomees e.g. corporation tax

46
Q

What are other govt interventions

A

Advertising and regulation/legislation

47
Q

Evaluation of advertising

A

-extent to which it’s successful is called into question because of the fact we have become desensitised to them
-costly to make advert so potential govt failure of administrative costs
-is it better for prevention rather than stopping
-is it better combined with other interventions

48
Q

Evaluation of regulation and legislation

A

-needs effective consequences
-causes a black market
-expensive to monitor and waste of scarce resources for doing so
-Opportunity cost because of this

microeconomics (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions