4.2 Market Power and Market Failure Flashcards
Draw the graph for a Positive Externality
See Book
Social Cost
Social Benefit
Private Benefit
Draw the graph for a Negative Externality
See Book
Social Cost
Private Cost
Social Benefit
Define Market Failre
Where there is an inefficient allocation of resources, resulting in them being wasted
Define Market Power
The ability of a producer to exert control over a market
Why is there commonly market failure in Monopolies?
Because they don’t to be so efficient because they don’t have to compete
Define ‘Restrictive Practises’ and give an example
Any action a firm may take to limit competition (e.g. Collusion)
How are ‘Restrictive Practises’ a form of market failure?
It reduces competition which reduces the need to be efficient
Explain how Cartels can be a form of Market Failure
They reduce the initiative to operate efficiently and innovate
Define Monopsony Power
Where the buyer has power over the seller
How is Monopsony Power a form of Market Failure?
Gives more room for the firm to become inefficient
Define what is meant by ‘Power in the Labour Market’
A firm being able to offer pay below the free market equilibrium
How is ‘Power in the Labour Market’ a form of market failure?
It forces costs down which gives more room to be inefficient and reduces the workers incentive to provide a good service
How does Market Failure affect consumers?
Restricts competition and increases prices
How does Market Failure affect the Government?
Economic Growth is slowed as spending decreases and goods become more expensive, reducing their international competitiveness
What do the CMA ‘Competition and Markets Authority’ do?
Investigate restrictive practises and mergers to avoid market domination
