Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
11 Cards in this Set
- Front
- Back
|
WHAT IS MARKET FAILURE?
|
Market failure exists when the market mechanism causes an inefficient allocation of resources, that is, the outcomes might not be economically and/or socially desirable
|
|
|
EXTERNALITIES
|
Third party effects arising from the consumption/production or goods/services that are not reflected in the market price. Negative Externalities include:-pollution
-Congestion Positive include:-Healthcare -education |
|
|
PUBLIC GOODS
|
-Can not be provided by firms for profit
-Non excludability (once the good has been provided, it's impossible to exclude anyone from the benefits) E.g. the national defence -Non rivalry (one persons consumption doesn't reduce the amount available for others)E.g. traffic lights -Free rider problem (incentive to refuse to pay in the hope that enough others would) |
|
|
PRIVATE GOODS
|
-Excludable and rivalrous in consumption
-Ability to assert property rights -E.g. food, clothing, video games |
|
|
MERIT GOODS
|
-Are desirable for the welfare of citizens, provide a positive consumption externality
-May be undervalued by consumers due to imperfect information -Retrospective regret -Are underprovided and underconsumed by the free market (market failure) -Reduction of inequality in society EVALUATION:-Tax burden/opportunity cost -Moral hazard/excess demand(no incentive for consumers to ration demand) |
|
|
DE-MERIT GOODS
|
-Are undesirable for the welfare of citizens
-Produce negative (consumption) externalities -May be overvalued by consumers due to imperfect information -Retrospective regret -Are overprovided and overconsumed by a free market -Are provided by a free market (market failure) -E.g. tobacco, junk food, alcohol etc |
|
|
IMPERFECT AND ASYMMETRIC INFORMATION
|
-Imperfect information (lacking crucial information to make a rational decision)
-Asymmetric Information (One party having more info than the others, resulting in imperfect decisions and therefore a misallocation of resources) -Asymmetric Information can also lead to moral hazard (the party with more info alters behavior in ways that benefit them whilst imposing costs on those with less info) |
|
|
LABOUR MOBILITY
|
GEOGRAPHICAL IMMOBILITY (impediments to the free geographical movement of workers):
-workers may be reluctant to move house -locality may have ties (family,friends) -Costs involved in moving OCCUPATIONAL IMMOBILITY: -Impediments to free movement of workers between different occupations. -Skills mismatch (non transferable skills) |
|
|
WHAT CAN THE GOVT DO ABOUT LABOUR IMMOBILITY?
|
-Supply info
-Training Housing schemes -Encouraging firms to locate in regions of high employment |
|
|
UNSTABLE COMMODITY PRICES
|
-Commodities include: milk, wheat, copper, cotton etc
-Hard coms can be stored (e.g. metal) -Soft coms (e.g. milk, eggs) can't be easily stored -Agricultural prices tend to be unstable/volatile. Supply is unstable as it's difficult to predict a good or bad harvest (due to weather, natural disasters etc), there's also a inability of producer's to change supply to react to market changes -Demand is inelastic as agricultural goods are used in the production of other goods |
|
|
HOW AND WHY DOES THE GOVERNMENT INTERVENE? |
Taxation, subsidies, tradeable pollution permits, state provision and regulation, maximum and minimum prices To correct market failure and reduce income inequality |
