Topic 2 Flashcards
1
Q
A bad equilibrium
A
When the market settles at a price and quantity where it would be possible to make some people better off without making anyone else worse off
2
Q
Lost total welfare due to companies and consumers are out of the market
A
Deadweight loss
3
Q
A good equilibrium
A
When the market settles at a price and quantity where it would be impossible to make some people better off without making anyone else worse off
4
Q
Welfare
A
- CS+PS
- Consumer Surplus + Producer Surplus
5
Q
Reasons for Market Failures
A
-
Market power: When barriers to entry prevent firms from entering
the market - Information Problems: may prevent market existing altogether * public (regulation, labelling) and private (reputational, self-interest) policies can aid this
- Externalities: when actions of one party affect costs or benefits of another party (e.g. pollution on local property)
-
Public Goods: goods that cannot be feasibly charged for the in the market
(e.g. street lights, national defence) - Merit goods: as a matter of social policy, we decide that people should be entitles to a good (e.g. heath, education)
6
Q
Private Cost
A
Cost to firm
7
Q
Social Cost
A
Cost to firm plus cost to society
