Business and government - market failure and externalities Flashcards Preview

Introduction to Economics > Business and government - market failure and externalities > Flashcards

Flashcards in Business and government - market failure and externalities Deck (26)
Loading flashcards...
1
Q

What is market failure ?

A

This arises when the market either fails to provide certain goods or fails to provide them at their optimum or most desirable level

2
Q

Three main types of market failure ?

A

monopoly
public goods
externalities

3
Q

What is individual failure ?

A

Irrational, lack of self control, behavioural economics

4
Q

What does privatisation mean ?

A

The surrender of some aspects of state inf;uence over economic activity and the consequent reassertion of market priorities

5
Q

When does market failure happen ?

A
  1. too little produced
  2. too much produced
  3. none produced
6
Q

What is the competition policy concept ?

A

This is a concept that involves attempts by the government to promote competitive practices between firms in markets

7
Q

What is the industrial policy concept ?

A

This involves attempts by the government to enhance the performance of firms in markets

8
Q

Types of goods ?

A

public

private

9
Q

What is a public good ?

A

One that, once produced, can be freely consumed by everyone

10
Q

What are externalities / third party effecrts ?

A

These are costs incurred or benefits received by other members of society not taken into account by producers and consumers

11
Q

What is a private good ?

A

One that is wholly consumed by an individual

12
Q

What is the free rider problem concept ?

A

This refers to the possibility that public goods will be underprovided by the market because individuals rely on others to pay for them

13
Q

What are the characteristics of public goods ?

A
They are hard for the market to deliver 
non rival
non excludable 
free rider problem 
e.g. street lighting
14
Q

How are public goods provided ?

A

Tax revenue goes to private contractors and then to pure public goods
OR
tax revenue goes straight to pure public goods

15
Q

When do externalities occur ?

A

When private transactions (market based) affect other third parties and the market cant understand what is happening

16
Q

Types of externalities ?

A

Negative

Positive

17
Q

What is the states role with regards to externalities ?

A

reduce negative externalities and promote positive ones

18
Q

What are positive externalities ?

A

When a private transaction produces unintended benefits

19
Q

What does the concept crowding out mean ?

A

it refers to the reduction in private expenditure that results folowwing an increase in government expenditure.

20
Q

why might governments not be able to correct market failure ?

A

Asymmetric information

resources

21
Q

Why might governments not be willing to correct a market failure ?

A

Behavioural symmetry
corruption / predatory states - developing countries
Vote chasing politicians - e.g. us giving 250 million to NFL stadiums
buraeaucracies have their own agenda - budgets
lobbying and regulatory capture - inside job
rent seeking - resources spent on trying to secure a favour without comp. effort.

22
Q

What 3 principles is the liberal view on market failure based on ?

A
  1. The state may fail too
  2. state failures may be worse than free market failure
  3. the failures of the free market are overstated
23
Q

What do liberals think about state failure ?

A

Voluntarism from customers is vital for market
vital individualist relationship between consumer and producer
1. The market is the only thing that can respond to desires of the society not the state
2. coercion - e.g. everyone having to pay tax and being fined if choosing not to
3. crowding out - e.g. the housing system in the UK - three types of housing = owner occupied, privately rented and state rented. The government built more state housing so that the government could receive more money
Liberals believe that unless it is absolutely necessary, the state should not intervene because a truely free market is the best

24
Q

why is privatisation good ?

A
  1. the market empowers the consumer
  2. promotes the division of labour
  3. sparks the entrepreneurial zeal of the profit motivated producer
25
Q

Why is privatisation bad ?

A
  1. a change of ownership in itself confers no obvious benefits
  2. the success for privatisation is the extent to which it promotes competition
26
Q

What is the coase theorem ?

A

he suggests that there may be other ways than simply the government suppressing negative externalities and promoting positive ones.
parties may be able to negotiate instead of the government intervening