U3 AOS1 Market Failure

Question 1

market failure

Answer 1

occurs when the free market fails to optimally and efficiently allocate resources to maximise societies wellbeing

Question 2

public goods

Answer 2

are NON-EXCULDABLE (non paying consumers cannot realistically be excluded from consumption) and NON RIVALROUS (the consumption of the resource by one entity doesn’t reduce the ability of another to consume the resource)

Question 3

externality

Answer 3

when a third party is either NEGATIVEL/
POSITIVELY impacted by an economic decision

Question 4

Positive externalities

Answer 4

refers to the indirect positive effect on a third party as a result of the consumption or production of a good or service.

Question 5

Negative externalities

Answer 5

refers to the indirect negative effect on a third party as a result of the production or consumption of a good or service.

Question 6

asymmetric information

Answer 6

when a party in an economic transaction possesses - but does not disclose - information relating to a transaction that may affect the willingness of another party to engage in that transaction.

Question 7

Common access

Answer 7

resources refer to productive inputs that are non-excludable i.e. non-paying consumers cannot be realistically excluded from consumption, and rivalrous i.e. the consumption of the resource by one entity necessarily decreases the ability of another entity to consume that resource.