The Maket Mechanism , Market failure and Gov Intervention

Question 1

market failure definition

Answer 1

market failure is when the price mechanism leads to a misallocation of resources.

Question 2

examples of market failure

Answer 2

geographical immobility of labour
negative externalities
monopoly power

Question 3

Negative consumption externalities definition

Answer 3

The negative impact of consuming a good/service has on a third party outside the price mechanism

Question 4

Negative production externalities definition

Answer 4

a negative cost to a 3rd party out side the porch mechanism as a result of producing a good

Question 5

indirect tax such as VAT is a government intervention to reduce supply and contact demand for negative externalities

Question 6

to correct a positive consumption externality a subsidy must be set equal to the side of the external benefit of MSC and MPC

Question 7

what’s maximum price

Answer 7

the highest price a good can legally be sold for by a firm operating below the equilibrium.