MARKET FAILURE Flashcards
what is market failure
when price mechanism fails to deliver resources efficiently and results in misallocation of resources
types of market failure
failure to stop—> feds—-> undiie
- under provision of public goods (consumed too much or too less)
- inequality of distribution of income and wealth
- information gaps
- externalities
how often does market failure happen
example of it
happens daily, gov tries top prevent it
e.g. cigarettes will be purchased at any price
what are externalities?
externalities are third party affects on (consumers) who are not involvved in the economic transaction.
what is speculative demand
asset that pays you off in long term
e.g. house rent for the same house
can market failure be a 25 marker?
yes!!
positive externalities + negative externalizes
+ive= external benefits
-ive= external costs
positive production + consumoption
negative production + consunmpotiokn
+ive production= vaccination, training someone to become e.g. doctor
+ive consumption= face mask hand sanitizers
- Ive production= factory pollution
- Ive consumption= alcohol (increase crime rate), cigarettes
why does market failure occur
because eternalizes are ignored completely
private costs
external costs
social costs
cost of doing something (wages, rent)
caused by externalities (pollution, drop crisp packet gov employs someone to pick it up)
social cost= private cost +exxternal costs
private benefit
external benefit
social benefit
benefit gained by producer or consumer by doing something e.g. exercise improves health and less strain on healthcare (e.g. NHS economy is more productive) and you feel better
benefit caused by externalities= higher earnings, healthy workplace, help NHS
social benefit= private benefit + external benefit
give examples of MPB PB EB PB+EB MSB
training to become a doctor wages you receive, feed your fam, higher eco welfare now save lives MSB MSB>>>>>> MSC good or bad equal
gouvernement accepts how society is working
SOCIALLY OPTIMUM LEVEL
demerit goods and merit
and giv intervention of merit +demerit
demerit do not benefit society overly consumed lower MSB than MSC
merit benefits the society and are under consumed
e.g. buses instead of cars , vaccinations encourages education
higer MSB rhan MSC
GOV INTERVENTION merit intervenes to increase discount schemes demerit intervenes to decrease consumption indirect taxes (if inelastic person might be addicted cigarettes)
Public goods = pb
consumed collectively and are non-excludable and non rival
non excludable- people cannot be stopped even if they haven’t paid
non rival- one benefitting from good doesn’t stop you from benefitting (roads pb but during traffic can become rivalry)
what is free rider problem
once a public good is provided it is impossible to make to stop someone from consuming them.
