5360470
Description
Flashcards by Sophie Knight, updated more than 1 year ago
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Created by Sophie Knight
almost 8 years ago
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| Question | Answer |
| What are the 3 types of market failure? | 1. Externalities 2. Underprovision of public goods 3. Information Gaps |
| What are externalities? | They are costs or benefits that are external to an exchange |
| What 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 |
| What 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 |
| What 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 |
| How does a 'missing market' occur? | When some goods are not offered at all through the market despite those goods having large benefits to society |
| What 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 |
| What 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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