Mixed Economy Flashcards
What is market failure? When does it occur?
Market failure refers to an inefficient distribution of goods and services in a free market. It occurs when the price mechanism fails to allocate resources efficiently, leading to a net welfare loss in the society.
What are externalities in the context of market failure?
Externalities are indirect costs or benefits caused by a producer, which affect the people outside the business. Externalities can lead to market failure if they result in damage to the health, environment, or property of others without any compensation to them.
What is the Free Rider Problem? When does this problem arise?
The Free Rider Problem refers to a person taking advantage of a common resource without paying for it. This problem arises when the cost of excluding someone from using the resource is too high, and therefore, people can consume the resource without contributing to its provision. The Free Rider Problem is a type of market failure.
What is the missing market problem in the context of market failure? Why might the government need to intervene?
The missing market problem is a situation where the private sector fails to provide goods and services that are required by society. In such cases, the government or other public entities may need to intervene to ensure that these goods and services are provided, as their absence leads to market failure. Examples of missing markets include public goods like education, healthcare, and environmental protection.
What is factor immobility in the context of market failure? How can factor immobility lead to market failure
Factor immobility refers to a situation where factors of production like labour or capital are not mobile or flexible enough to adapt to changing market conditions.
This can lead to market failure, as factors of production may not be used efficiently, leading to suboptimal outcomes. For example, if there is a shortage of skilled labour in a particular industry, it may lead to lower productivity and higher costs.
What is the definition of privatisation?
Privatisation is the act of selling a company or activity controlled by the government to private investors.
What are the general benefits of privatisation?
The general benefits of privatisation include generating more income, avoiding market failure, and reducing political interference.
What impacts does privatisation have on consumers? Give pros and cons
Privatisation can result in increased competition, cheaper prices, and higher quality products for consumers. However, it could also lead to a reduction in product quality and the creation of monopolies or oligopolies.
How does privatisation affect workers?
Privatisation can increase demand for workers, but private firms may also change working conditions, leading to decreased job security or decreased wages.
What impacts does privatisation have on businesses? Give pros and cons
Privatisation can change firms’ objectives to maximizing profits, leading to diversification and investment in research and development.
However, lack of government support and increased competition can make it difficult for firms to compete and could result in decreased profits.
How does privatisation affect governments? Give pros and cons
Privatisation can lead to increased revenue for governments from corporate and income taxes. However, a lack of control over goods and services and a possible decrease in quality could result in decreased government revenue.
What is the private sector?
The private sector refers to businesses owned by individuals, whose aims could be profit, growth, or survival in the market.
What is the public sector?
The public sector refers to businesses owned by the government, whose aims could be the provision of public services, protecting the environment, promoting economic growth, or reducing income inequalities through welfare benefits.
What are the aims of the private sector?
The aims of the private sector could be profit, growth, or survival in the market.
What are the aims of the public sector?
The aims of the public sector could be the provision of public services, protecting the environment, promoting economic growth, or reducing income inequalities through welfare benefits.
