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Microeconomics > Theme 1 Topic 3 > Flashcards

Theme 1 Topic 3 Flashcards

1
Q

What is market failure ?

A

When the allocation of goods/services are inefficient to meet the needs of society.

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2
Q

When will allocative inefficiency occur ?

A

When there is always going to be market failure.

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3
Q

What is the government’s job ?

A

To eliminate market failure. This is done by intervening in markets (government intervention).

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4
Q

What is government intervention ?

A

When the government takes action to remedy allocatively remedy inefficient markets.

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5
Q

What does a government try to ensure (in terms of government intervention) ?

A

That a market works both efficiently and in a fair manner.

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6
Q

How does a misallocation of resources occur ?

A

The market creates the mechanism for allocating scarce resources, however, the markets are often inefficient in doing this job. Therefore, there is a misallocation of resources.

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7
Q

What are the 3 reasons for a misallocation of resources ?

A
  1. Externalities
  2. Information gaps
  3. Under-provision of public goods
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8
Q

What is complete market failure ?

A

When there is no market at all (a missing market). Goods/services won’t be supplied to the market as firms don’t receive revenue for supplying the product.

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9
Q

What is an example of a good/service that is in complete market failure ?

A

Street lighting

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10
Q

What is partial market failure ?

A

When a market exists but there is a misallocation of resources. Goods/services will be supplied, but in the wrong amounts.

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11
Q

What is an example of a good/service that is in partial market failure ?

A

Merit and demerit goods

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12
Q

What is a public good ?

A

It’s consumption doesn’t reduce the amount available for consumption by others.

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13
Q

What are the 2 key characteristics of public goods ?

A
  1. Non rival goods
  2. Non excludable goods
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14
Q

What is a non-rival good ?

A

Where consumption of the good doesn’t reduce the amount available for consumption by others.

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15
Q

What is a non-excludable good ?

A

Where, once provided, it is impossible to stop other individuals from using them. E.g. a public park

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16
Q

What can both public goods and private goods have ?

A

Positive and negative externalities

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17
Q

What are 2 examples of public goods ?

A
  1. Army
  2. Street lighting
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18
Q

What is a pure public good ?

A

It is impossible to exclude someone from consuming it if they are unwilling to pay for its use.

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19
Q

What is an example of a pure public good ?

A

The air that we breathe.

20
Q

Why is it difficult to place a value on public goods ?

A

Because they don’t have a market price.

21
Q

What is valuation ?

A

A method used to try and estimate the worth of public goods.

22
Q

What is one way in which valuation estimates the worth of public goods ?

A

Through primary research, to find out how much the good is worth to a consumer if they had to pay for it.

23
Q

What is one reason why market failure occurs ?

A

Due to the free rider problem.

24
Q

What is a free-rider ?

A

Someone who benefits from a good/service without paying for it.

If there is little incentive for firms to supply public goods, the government is likely to intervene.

25
Q

What is a private good ?

A

It’s consumption reduces the amount available for consumption by others.

26
Q

What are the 2 key characteristics of private goods ?

A
  1. Rival goods
  2. Excludable goods
27
Q

What is a rival good ?

A

Where consumption of the good reduces the amount available for consumption by others.

28
Q

What is an excludable good ?

A

Where, once provided, it is possible to stop other people from using them.

29
Q

What are 2 examples of private goods ?

A
  1. Clothing
  2. Cars
30
Q

What is quasi ?

A

‘Having a likeness to’

31
Q

What is a quasi public good ?

A

A private good that is similar to a public good but there is a chance to stop non-paying consumers from using it.

32
Q

What is an example of a quasi public good ?

A

Restring access to a beach or public park

33
Q

What is a technical change ?

A

The process of innovation, invention, and the widespread use of technology in society.

34
Q

What can a technical change lead to ?

A

Markets efficiently providing goods which were previously regarded as non-excludable and non- rival goods (public goods).

Public goods become private goods over time.

35
Q

How can a technical change be achieved ?

A
  1. IPR
  2. Monitoring + Controlling systems
36
Q

What is IPR ?

A

intellectual property rights is when granting payments, or copyright, so goods become protected and excludable.

37
Q

What are monitoring and controlling systems ?

A

Restricting the use of a good by monitoring usage e.g. digital tv

38
Q

Is technology rival or non rival ?

A

Non rival

39
Q

How can technology become rival goods ?

A

It’s use can create tangible goods.

40
Q

What is information failure ?

A

A type of market failure where consumers or producers either have asymmetric information or don’t have symmetric information

41
Q

What is asymmetric information ?

A

When someone parties in a transaction have more information regarding the products than others.

42
Q

What is symmetric information ?

A

When all the relevant information is known by both parties

43
Q

How can information failure lead to misallocation of resources ?

A

Without having full information about a product, it’s hard for consumers and producers to make decisions regarding price, quality, and other relevant factors when buying and selling. This leads to a misallocation of resources.

44
Q

What is perfect knowledge ?

A

A theoretical concept which occurs when all consumers in a market are fully aware of price, quantity available, and other information for all products when making buying decisions.

45
Q

What are 2 characteristics of quasi-public goods ?

A
  1. Semi non rival - more consumers don’t reduce the space available for others.
  2. Semi non excludable - it is costly to exclude non paying consumers

Microeconomics (4 decks)

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