Validation

Question 1

What is Market Effiency

Answer 1

Market efficiency also occurs when resources are allocated to maximised society’s benefits and is measured by the total surplus.

Question 2

What does demand curve show?

Answer 2

A demand curve is a willingness to pay curve. It reflects the maximum price that a consumer will pay for a good. The demand curve also reflects the marginal benefits a consumer gets from a good. It therefore is also a marginal benefit curve.

Question 3

What does supply curve show?

Answer 3

The supply curve reflects the minimum price that producers are willing to sell their products.
It shows each price and quantity that the supplier or producers is willing to accept

Question 4

What is producer surplus and give an example?

Answer 4

Producer surplus is the difference between what a producer is willing to receive and what they actually receive.

Question 5

How to find total surplus

Answer 5

TS = CS + PS.

Question 5

What is the most market effiecient?

Answer 5

Economic efficiency occurs when total surplus is at a maximum. Total surplus is only maximised at equilibrium

Question 6

4 main types of market failure?

Answer 6

Market Power
Externalities
Public Goods
Common Goods
MEPC

Question 6

What is Market failure

Answer 6

Market failure occurs when resources are not allocated efficiently.

Question 7

Compettive Market characterisitcs?

Answer 7

large number of firms, little barriers to entry and exit, and little product differentiation.

Question 7

Example of barrier to entry?

Answer 7

Technolgoical adavance, patent, controlling of scare resource

Question 7

Market Power exists when+example and explain

Answer 7

There are a small number of firms
Firms use product differentiation
There are barriers to entry to restrict competition. An example is Synergy (power) or Australia Post

Question 8

What happens when there is market power?

Answer 8

When there is market power, there is an incentive for firms to collude. This reduces competition, increases prices and reduces output. This will decrease economic welfare for society.

Question 8

What is Market Power

Answer 8

when a company is able to significantly manipulate or control the prices of products or services by exercising control over supply and demand.

Question 8

How is Market Power stoopped?+most common form to stop regulation

Answer 8

Governments try to introduce policies to reduce market power and reduce imperfect markets. The aim is to increase competition and lower prices for consumers. They use price regulation to stop market power.

Question 8

Does subsidy go to total surplus?

Answer 8

The subsidy cost is removed from our total surplus.

Question 9

When do externalities occur?

Answer 9

An externality occurs when the production or consumption of a good or service creates external costs and/or external benefits. These side effects are known as externalities.

Question 10

Examples of externalities

Answer 10

People smoking creating health issues for the community
Loud music from concerts disturbing residential areas
Toxic chemicals from a factory into a river

Question 11

What is private cost

Answer 11

– These refer to the cost of the user of the product/service

Question 12

What is social cost?

Answer 12

– These refer to the cost to society as a whole due to the product or service.

Question 13

What is postive externalties?

Answer 13

a benefit received or transferred to a party as an indirect effect of the transactions of another party.

Answer 13

When a negative externality occurs, the social cost (cost to society) is higher than the private costs.

Question 14

What is negative externalities?

Answer 14

When a negative externality occurs, the social cost (cost to society) is higher than the private costs.

Question 15

Effects of tax on market?

Answer 15

Decrease CS AND PS and adds DWL

Question 16

Effects of subsidy on market

Answer 16

CS AND PS increases as well as DWL reduction

Question 17

What are price ceilings?

Answer 17

Price ceilings prevent a price from rising above a certain level.
When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.

Question 18

Effects of pric ceiling on market

Answer 18

The reduction in consumer surplus occurs because consumers cannot purchase the quantity they desire at the lower price.
Producer surplus decreases as producers are forced to sell their goods at a price below what they would receive in a free market.
Price ceilings lead to an inefficient allocation of resources.

Question 19

What is price floor

Answer 19

Price floors prevent a price from falling below a certain level.
When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result.

Question 20

Characteristics of imperfect market?

Answer 20

There are a limited number of firms or sellers in the market, often with significant market power.
Sellers have some degree of control over the price of their product.
There are barriers that prevent new firms from entering the market easily.
Demand is often relatively elastic due to the availability of substitutes and the presence of product differentiation.

Question 21

Causes of Market Power

Answer 21

High entry barriers prevent new firms from entering the market.
Firms with superior technology can produce goods at lower costs or offer better-quality products.
Monopolies
Collusion between big companies

Question 22

Classification of goods

Answer 22

Goods are classified based on rivalry (whether one person’s consumption affects others) and excludability (ability to exclude non-payers). Rivalrous goods include food and cars, while non-rivalrous goods like public parks. Excludable goods can be private (clothing) or club goods (satellite TV), while non-excludable goods include public goods like national defense.

Question 24

What are public goods and some examples?

Answer 24

hopspital park

Question 25

What market power does

Answer 25

When there is market power, there is an incentive for firms to collude. This reduces competition, increases prices and reduces output. This will decrease economic welfare for society.
CS +PS = TS

Question 26

What is an Externality?

Answer 26

An externality occurs when the production or consumption of a good or service creates external costs and/or external benefits. These side effects are known as externalities.

Question 27

What is benefit for positive eternality?

Answer 27

When positive externalities occur, the social benefit is usually larger than the private benefit.

Question 27

Private cost?

Answer 27

Private costs – These refer to the cost of the user of the product/service

Question 28

Social Cost?

Answer 28

These refer to the cost to society as a whole due to the product or service. When a negative externality occurs, the social cost (cost to society) is higher than the private costs.