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9 Cards in this Set
- Front
- Back
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What is market failure |
»»When the price mechanism fails to allocate scarce resources efficiently »»When market forces lead to a net social welfare loss. |
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What are the types of market failure |
>Lack of public goods >Under-supply of merit goods >Over-supply of demerit goods >The creation of monopolies >The existence of externalities >Inequality |
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What are public goods |
Goods where the consumption by one person does not reduce the availability to consume for the next person e.g. Street Lights |
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Why won't public goods be provided in a free market |
Public goods are non-rivalrous and non- excludable which means they cannot be produced for profit-maximisation so firms won't produce them at all. |
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What are merit goods |
Merit goods are goods that the government thinks have a positive benefit for the people that consume them and for society as a whole e.g. education |
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Why will merit goods be under-supplied in a free market |
People don't value the positive externalities when consuming a good Firms will only produce them for profit making them unaffordable for some people |
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What are demerit goods |
Demerit goods are goods that the government thinks have a negative effect on the people that consume them and for society as a whole e.g. alcohol, cigarettes |
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Why are demerit goods over-supplied in a free market |
Consumers don't realize the negative externalities that these goods have and so demand them at a higher level. Firms, being profit maximisers, catering for the high demand. |
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What is a monopoly |
When there is only one firm producing in the market. |
