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Market Failure P2 > 5 > Flashcards

5 Flashcards

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1
Q

Define market failure

A

It occurs when the forces of demand and supply fail to allocate resources efficiently

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2
Q

Social cost refers to

A

Refers to the total cost that the producer and the community will incur

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3
Q

Social benefits refer to

A

It refers to the benefits that the producer and the community will incur

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4
Q

Social costs=

A

Private costs+external costs

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5
Q

Social benefits=

A

Private benefits+external benefits

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6
Q

Define missing market

A

It is a situation where there is a demand for a good or service but no supply

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7
Q

Non-rivalous means

A

It means that the use of public goods by one person does not reduce the quantity or quality available to others

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8
Q

Non-excludable means

A

It means that public goods can be used by every body including people who do not pay for them who are the free riders

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9
Q

Non-rejectable means

A

It means that individuals cannot abstain from using these goods and services

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10
Q

What are merit goods

A

Merit goods are goods that have positive impact on the general welfare of the population

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11
Q

What are demerit goods

A

They are goods that have negative impact on the general welfare of the population

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12
Q

Name three characteristics of merit goods

A

They are highly desirable for the welfare of the society they are not highly rated by the market and they are under supplied

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13
Q

Name three characteristics of demerit goods

A

They are not highly desirable for the welfare of society they are highly rated by the market they are over supplied

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14
Q

How does imperfect competition cause market failure

A

Imperfect competition such as monopolies they charge high prices and limit supply this results in a shortage of goods and services there by causing prices to increase these causes market failure

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15
Q

Describe the term lack of information

A

It occurs when market participants do not have the necessary information to make informed decisions

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16
Q

Utility refers to

A

It refers to the degree of satisfaction that the consumer derives from the consumption of goods and services

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17
Q

Describe the term immobility of factors of production

A

Immobility of factors of production can be described as the various factors of production that are unable to relocate to a different market

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18
Q

Describe imperfect distribution of income and wealth

A

It’ll cares when income is not distributed equally which results in some people not being able to access the necessary goods and services there by causing exclusion

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19
Q

Describe price discrimination

A

It occurs when the same good is sold at different prices to different parties

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20
Q

Name two causes of market failure

A

Missing markets the provision of public goods and services is in high demand and often the supply cannot meet the demand

Lack of information suppliers often give incomplete information this means that consumers are compromised

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21
Q

Name three consequences of market failure

A

Inefficiencies
They occur when the consumer pay prices that are too high or when the correct quantities of goods and services have not been supplied
Productive inefficiency
It okays when businesses do not maximize output from the
given inputs
Allocative inefficiency
Occurs when businesses do not allocate resources correctly and produce goods and services that consumers do not want

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22
Q

What is parento efficiency

A

Refers to a situation when it is impossible to make one person better off without making another worse of

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23
Q

Define positive externalities

A

The benefit gained by a third party which is not included in the market price

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24
Q

Define negative externalities

A

A cost to a third party which is not included in the market price of a good

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25
Define externalities
Externalities are costs or benefits imposed on dead parties who are not involved in the original transaction
26
What are private costs
The actual cost paid by a consumer when a good is purchased
27
What is private benefits
A game that a consumer gets from the use of a good or the gain a producer gets from the sale of a product
28
29
What are explicit cost
They refer to the actual expenditure that a business encurs in the production process
30
What are Implicit costs
They refer to the value of inputs that are owned by the entrepreneur and used in the production process
31
What are sunk costs
They refer to the capital that was invested in a business and cannot be recovered if the business closes down
32
Define short run
A refers to the period of production where only the variable factors of production can change
33
Define long run
Refers to the period of production where the fixed and variable factors of production can change
34
Describe price takers
Day must accept the prevailing market price incel each unit at the same market price
35
Describe price makers
They are able to determine an influence the market price and therefore enjoying pricing power
36
Define collusion
It occurs when buyers and sellers decide to limit competition
37
Productive efficiency
It refers to production methods that will be most cost effective without wasting resources
38
Allocative efficiency
It occurs when the firm produces the optimum quantity of goods and services desired by consumers
39
40
Define industry
It refers to all the businesses producing a particular kind of product or service
41
Define normal profit
It refers to the minimum earnings required to prevent the entrepreneur from closing the business
42
Economic profit
It refers to the profit that is earned in addition to normal profit
43
Economic loss
Occurs window firms costs are higher than the firms Revenue
44
Merger
Occurs when two companies become one company by mutual agreement
45
Acquisition
Occurs when one company takes complete control over the ownership of another company
46
Monopoly
It is a market structure where there is only one supplier of goods or services for which there are no Close substitutes
47
Market information
Refers to the information about market conditions there is available to the market participants
48
Patent
It is a legal an exclusive right to manufacture a good or service
49
Licensing
It is a method used to protect operators by restricting entry of other competitors into the market
50
Copyright
It is a form of intellectual property which allows the owner the exclusive and legal right to own and protect the intellectual property
51
Oligopoly
It is a market structure where a small number of large sellers dominate the market
52
Duo poly
It is a market structure where two firms dominate the market
53
Market share
Refers to the number of customers to which the business has access
54
In the short run the individual business can make
Normal profit economic profit and economic loss
55
Under perfect competition individual businesses can only make _____in the long run
Normal profit
56
When does a perfect competition individual businesses can only make normal profit because of these two reasons
New competitors can enter the industry and all factors of production are variable in the long run
57
When does the shutdown point occur
It occurs when a firm is not able to pay its variable cost so it will shut down
58
Name two aims of the competition policy
To protect the consumer and to prevent firms from using restrictive practices
59
South Africa's anti monopolistic policy was actively promoted through what
It was promoted through no restrictions on entry into an industry and ensuring that existing companies did not gain more market share
60
The competition act was introduced to achieve which two objectives
Stimulating economic growth and providing a wider variety of goods and services at lower prices
61
Name one form of non-price competition
Advertising and marketing Oligopolis spend large amounts of money on advertising and marketing to ensure that consumers are aware of specials sales and rewards
62
Define non-price competition
Non price competition occurs when oligopolies do not compete with each other by using prices to gain market share
63
Define product differentiation
It refers to methods used by the supplier to make their good or service stand out and thereby draw attention
64
Define brand loyalty
It refers to the commitment of consumers to a specific brand regardless of potential price increases
65
Define overt collusion
It occurs when oligopolis openly collude and formally agree on prices and quantities to maximize profit
66
Define a cartel
It occurs when oligopolies within a specific industry join forces with the main aim of forming a collective Monopoly to ensure more market power
67
Define tacit collusion
It occurs when oligopolis pollute silently and informally amongst themselves on prices and quantities in order to maximize profit
68
Define price leader
It is normally the largest and most dominant supplier in the industry whose production cost is the lowest

Market Failure P2 (1 decks)

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