Section 5 - Market Failure

Question 1

Market Failure

Answer 1

When the price mechanism fails to allocate scarce resources efficiently and society suffers as a result

Question 2

Missing Market

Answer 2

Complete market failure, no market exists

Question 3

Partial failure

Answer 3

When the market functions, but either the price or quantity supplied of the good/service is wrong

Question 4

Externalities

Answer 4

The effects that producing or consuming a good/service has on third parties

Question 5

Third Parties

Answer 5

people who aren’t involved in the making, buying/selling and consumption of good/service

Question 6

Positive externalities

Answer 6

The external benefits to a third party

Question 7

Negative externalities

Answer 7

External costs to a third party

Question 8

Private cost

Answer 8

The cost of doing something to either a consumer or a firm

Question 9

Social cost

Answer 9

Private + External cost
The full cost borne by society of a good or service.

Question 10

External costs

Answer 10

Caused by externalities

Question 11

Private benefit

Answer 11

The benefit gained by a consumer or a firm by doing something

Question 12

External benefit

Answer 12

Caused by externalities

Question 13

social benefit

Answer 13

External + Private benefit
The full benefit received by society from a good or service

Question 14

Marginal private cost (MPC)

Answer 14

The cost of producing the last unit of a good

Question 15

Marginal Social Cost (MSC)

Answer 15

Marginal private cost + external cost

Question 16

Marginal private benefit (MPB)

Answer 16

The benefit to someone consuming the last unit of a good

Question 17

Marginal social benefit (MSB)

Answer 17

Marginal private benefit + External benefit

Question 18

Overproduction

Answer 18

More is produced than is desirable for society

Question 19

Underpricing

Answer 19

Sold at a lower price than is desirable for society

Question 20

Underconsumption

Answer 20

Less is consumed than is desirable for society

Question 21

Overpricing

Answer 21

Sold at a higher price than is desirable for society

Question 22

Merit goods

Answer 22

Goods whose consumption is regarded as being beneficial to society

Question 23

Demerit goods

Answer 23

Goods whose consumption is regarded as being harmful to the people that consume them, but people are usually unaware (don’t care) about the harm that the demerit goods can cause

Question 24

Public goods

Answer 24

Goods that are consumed collectively

Question 25

Non-excludability

Answer 25

People can’t be stopped from consuming the good even if they haven’t paid

Question 26

Non-rejectable

Answer 26

People can’t choose to not consume the good

Question 27

Non-rivalry/non-diminishability

Answer 27

One person benefiting form the good doesn’t stop others also benefiting

Question 28

Private goods

Answer 28

Goods that are consumed privately

Question 29

Quasi-public goods

Answer 29

Exhibit the characteristics of a public good- but not fully

Question 30

Free-rider problem

Answer 30

Once a public good is provided, it’s impossible to stop someone from benefitting from it, even if they haven’t paid towards it.

Question 31

Symmetric information

Answer 31

Perfect information which is equally available to all participants in a market

Question 32

Asymmetric information

Answer 32

Imperfect information when buyers or sellers have more information

Question 33

Inequity

Answer 33

unfairness

Question 34

Income

Answer 34

The amount of money received over a set period of time

Question 35

Wealth

Answer 35

The value in money of assets held

Question 36

Immobile factor of production

Answer 36

One that can’t be easily moved to another area of the economy

Question 37

Monopoly power

Answer 37

The ability of a firm to influence the price of a particular good in the market