Snducbsbs Flashcards
(19 cards)
When does moral hazard occur
When excessive risk is taken by someone given that a third party will bear the cost of that risk if something goes wrong - can apply to policies like nationalisation and state provision
What is adverse selection
When asymmetric information between buyers and sellers results in the worst quality goods/services being offered in the market - e.g second hand car markets, insurance markets
What is Coase Theorem
Free market solution to environmental related market failures in particular. Says that if property rights are clearly defined, and transaction costs are low or zero, private parties can negotiate to resolve externalities efficiently without government intervention. Bargain for socially optimal solution
What is a Pareto optimal solution (or Pareto efficiency)
An economic outcome where it is impossible to make one party better off without making another party worse off. It represents an efficient allocation of resources. Both parties benefit from this arrangement
EV to public goods only being provided by the state
Quasi public goods may be provided by the private sector if they demonstrate the characteristics of a private good enough. If there is enough of a profit incentive
What is efficiency wage theory
Concept whereby if wages are pushed above equilibrium in the labour market, you might actually get efficient outcomes (for worker and firm) higher morale, productivity. Lower staff turnover. (Benefits of trade unions and min wages)
What is the lump of labour fallacy
The mistaken belief that there is a fixed amount of jobs available in an economy, so if one group gains employment, another group must lose it. This fallacy assumes that the total number of jobs is constant, ignoring that the job market is dynamic. - can create more jobs in the future
When can you talk about the principal agent problem
Differing business objectives that might be pursued
When is a good time to draw prisoners dilemma
Oligopoly markets
EV point to monopoly and oligopoly markets having allocative inefficiency, need for regulation
If the market is Contestable, might be gains of allocative efficiency. High threat of entry - outcomes inline with public interest. Need for regulation not necessary
What is a trade union
An organisation of lots of workers that bargain especially for high wages but also for better working conditions. Bargain collectively
What is assumed in a trade union diagram
‘Closed shop’ trade union - in a given profession all the workers are part of only one trade union. The trade union becomes a monopoly supply of labour
Explain the movements
Demand curve shifting right>supply at q1 while demand moves to Qd, excess demand>puts upward pressure on price (p1 to p2)>higher prices signal there has been excess demand, need for more resources in the market,>higher prices incentivise firms to produce more output (incentive function)»_space; higher prices also ration resources by discouraging demand (contraction along demand curve)
Cons of a monopoly
Allocative inefficiency
Productive inefficiency
X inefficiency
Inequalities in necessity markets
Pros of monopoly
Dynamic efficiency
Greater EOS
Natural monopoly- regulated will give society desirable outcome
Cross subsidisation
Monopoly EV
Dynamic efficiency?
Eos or deos?
Objective
Regulation
Price discrimination (against mon)
Competition or threat of…
Natural monopoly
Type of good/service
Competitive markets pros
Allocative efficiency
Productive efficiency
X efficiency
Jobs
Competitive market cons
Lack of dynamic efficiency
Lack of EOS
cost cutting in dangerous areas
Creative destruction of incumbents when new firms enter
Competitive markets EV
Still dynamic efficiency?
Level of eos?
Natural monopoly Type
Where is cost cutting taking place
Role of regulation?
Static vs dynamic efficiency
Type of good/service
