What happens when the market fails? (CH 17)

Question 1

What can market power cause for the price?

Answer 1

The price to be to high or to low

Question 2

What happens when price is too high?

Answer 2

It’s not allocatively efficient (to needs/wants of society)

Question 3

What happens when price is too low?

Answer 3

When there is too many sellers but not enough buyers

Question 4

Monopoly Meaning

Answer 4

When one firm has sales from all the buyers (market control)

Question 5

Monosoney Meaning

Answer 5

Market condition when one buyer is present

Question 6

Market Failure Meaning

Answer 6

When resources are allocated inefficiently due to distorted prices

Question 7

Externalities Meaning

Answer 7

Cost or Benefit that effects everyone but the buyer.

e.g- All third parties and sellers

Question 8

Third Party Meaning?

Answer 8

Anyone apart from buyer/seller who is effected by an economic activity

Question 9

External costs formula

Answer 9

MSC (Marginal social cost) - MPC (Marginal private benefits)

Question 10

Fast food E.G of External Costs (MSC and MPC):

Answer 10

+ Provides Jobs
+ Provides Low income households with cheap nutrition
- Promotes unhealthy lifestyle leading to hospitals being taken up

Leads to increase costs of substitutes

Increased advertisement for healthy eating