Market Failure & Govt Intervention

Question 1

4 types of market failure

Answer 1

1- negative externalities
2- positive externalities
3- public goods
4- information gaps

Question 2

MF def

Answer 2

When the price mechanism leads to a misallocation of resources

Question 3

Negative externalities

Answer 3

Costs which affect third parties outside the price mechanosim

Question 4

Negative consumption expternalities

Answer 4

costs of consuming a product which affects third parties outside the price mechanism (alcohol and cigarettes)

Question 5

negative production externalities

Answer 5

the costs of producing a product which affects their parties outside the price mechanism (building)

Question 6

PC

Answer 6

the cost of consuming a product on the individual

Question 7

PB

Answer 7

A benefit top the consumer inside the price mechanism

Question 8

EC

Answer 8

The cost of consuming a product on society

Question 9

EB

Answer 9

The benefit of consuming a product on society

Question 10

formula for social cost

Answer 10

social cost= private cost + external cost

Question 11

Social benefit EQ

Answer 11

social benefit= private benefit + external benefit

Question 12

On an externality what is S

Answer 12

Supply Is equal to marginal cost

Question 13

Social efficient equilibrium

Answer 13

point on externality diagram where there is no net welfare loss

Question 14

Axis on an externality graph

Answer 14

for free market eq = Pm & Qm
For social efficient equilibrium = Ps & Qs

Question 15

Solving negative externalities

Answer 15

• Tax
• Pollution Permints (EU)
• Min Price (Alcohol in Scotland)

Question 16

Tax as a solution to negative externalities

Answer 16

Indirect tax: increases cost

Specific- indirect tax

ad valorem tax- tax at direct rate 20% VAT

how to choose right tax- no externality- production at societal eq

Question 17

Internalised externality

Answer 17

when an externality has been removed

Question 18

Pollution permits

Answer 18

Cap and trade (EU)

Cap- market emissions

Release permits

give permits to pre-existing firms

auction remaining permits

create a secondary exchange market

govt gets tax rev

Question 19

Minimum price

Answer 19

the lowest a good can sell for

Question 20

Minimum price in Scotland

Answer 20

1 unit has to be sold for at least 50p

Question 21

Regulation

Answer 21

More extreme market intervion

In 1997 firearms act banned handguns in the UK

Less strict regulation includes notices on cigarette packers

Question 22

Positive externalities

Answer 22

benefits which affect thrive parties outside of the price mechanism

Question 23

Positive consumption externalities

Answer 23

benefits which effect third parties from the consumption of a good

Question 24

Positive production externalities

Answer 24

benefits which affect third parties form the production of a good

Question 25

Methods to tacke positive externalities

Answer 25

Subsidies Max price

Question 26

Max price

Answer 26

set below EQ

Question 27

impact of a subsidy

Answer 27

internalised economies

Question 28

Public gods

Answer 28

goods which are non excludable and non rival the military

Question 29

non excludable

Answer 29

when you cannot stop someone using a good

Question 30

Non rival

Answer 30

when one person's consumption of a good cannot stop or limit another persons consumption

Question 31

free rider problem

Answer 31

consumers wait for others to buy a good and then consume their good only happens with public goods

Question 32

what does the free rider problem lead to

Answer 32

a misallocation of resources

Question 33

State provision of gods

Answer 33

when the government provides public goods paid for by tax

Question 34

Quazi Public goods

Answer 34

Goods which are excludable and non rival or non excludable but rival

Question 35

pure public good

Answer 35

flood defences such as the thames barrier

Question 36

Tradagy of the commons

Answer 36

The commons represents a natural public good Because there is moral hazard, in that those who collect the good because the cost of overconsumption doesn't lie on any one person

Question 37

Information gaps

Answer 37

Imperfect information lack if info to make decisions more info helpful to close information gaps

Question 38

2 types of information gap

Answer 38

1 incomplete information 2 asymmetric informaiton

Question 39

Incomplete information

Answer 39

when someone doesn't have full information about a product or situation this will lead to over or under consumption

Question 40

correction of incomplete information

Answer 40

1. regulation 2. info provision 3. subsidy

Question 41

asymmetric information

Answer 41

when one party has more info than another party

Question 42

government intervention in the second hand car market

Answer 42

if a used car breaks within 6 months of the sale then the provider must replace repare refund

Question 43

Merit goods

Answer 43

goods which are under consumed with positive externalities often with information gaps

Question 44

Demerit goods

Answer 44

goods which are over consumed with negative externalities

Question 45

Value judgement

Answer 45

a normative decision weighing up the pros and cons such as- is education a merit good

Question 46

Geographical immobility of Labour

Answer 46

being unable to move from one area to another

Question 47

Occupational immobility of Labour

Answer 47

lacking the skills to do a job

Question 48

3 types of government intervention for structural unemployment

Answer 48

1 education 2 training 3 aprentaships

Question 49

Equitable

Answer 49

fair

Question 50

equal

Answer 50

the same as

Question 51

2 criticisms of progressive tax

Answer 51

1 higher tax leads to lower income as wage rises these tax payers will consume less in the economy 2 can create dependants on the government 3 does nothing to tax wealth

Question 52

Fiscal drag

Question 53

7 types of missing market

Answer 53

1 exernalitites 2 public goods 3 information gaps 4 merit and demerit goods 5 monopoly power 6 factor immobility 7 unequal distribution of wealth

Question 54

Missing market

Answer 54

where there is demand but no supply

Question 55

Which 3 market failure are market imperfections

Answer 55

information gaps monopoly power factor immobility