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Market Failure
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- 1What are the 3 types of market failure?1. Externalities
2. Underprovision of public goods
3. Information Gaps - 2What are externalities?They are costs or benefits that are external to an exchange
- 3What is the difference between the market equilibrium and the social equilibrium?The market equilibrium is where the marginal private costs are equal to the marginal private benefits
The social equilibrium is where marginal social benefit = marginal social cost - 4What are the 6 consequences of negative externalities?1. Overproduction as the FM level of output exceeds the social optimum
2. Underpricing as FM price is lower
3. Welfare loss as MSC > MSB
4. concerns over the availability of resources for future generations
5. Concerns over pollution levels
6. Calls for government intervention - 5What are the 5 consequences of positive externalities?1. underproduction
2. Underpricing
3. Potential welfare gain
4. Long term implications of underproduction e.g. low economic growth
5. Calls for government intervention - 6How does a 'missing market' occur?When some goods are not offered at all through the market despite those goods having large benefits to society
- 7What are the 2 main characteristics of public goods?1. Non-rivalry - many people can use the good without preventing other people from doing so
2. Non-excludability - It is impossible to stop people from benefitting from the good
- 8What is the result of an information gap?Consumers and producers end up making irrational economic decisions which reduces the welfare of goods.
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- Descripción
- Unit 1 edexcel economics market failure
- Creado por
- Sophie Knight
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