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Economics Micro > The Market Mechanism, Market Failure And Government Intervention In Markets > Flashcards

The Market Mechanism, Market Failure And Government Intervention In Markets Flashcards

1
Q

Why do markets fail (examples)?

A
  • Negative externalities
  • Positive externalities
  • Punlic goods
  • Information failures
  • Monopoly power in markets
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2
Q

What are externalities?

A

Spill over effects from production and/or consumption for which no appropriate compensation is paid to one or more third parties affected.

They lie outside the initial market transaction and they are no reflected in the market price

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3
Q

What is an example of a negative consumption externality

A

A household and industrial wasted noise pollution

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4
Q

What is an example of a positive consumption externality

A

A vaccination to protect public health during a pandemic

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5
Q

What is an example of a negative production externality?

A

A factory pollution or waste from manufacturing

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6
Q

What is an example of a positive production externality?

A

Reforestation projects and free sharing of academic research

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7
Q

What is asymmetric information?

A

When one party knows more or has better information than the other party in a transaction

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8
Q

What is the competition policy?

A

Government intervention that reduces monopoly power and introduces competition to reduce consumer exploitation

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9
Q

What is complete market failure?

A

Occurs when there is missing a market

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10
Q

What is consumption externalities?

A

An externality generated through consumption of a good or service

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11
Q

What is a demerit good?

A

Goods where the social costs in consumption exceed the private costs on consumption

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12
Q

What is the department for business, innovation and skills (BIS)?

A

An organisation that aims to enhance UK industry performance

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13
Q

What does deregulate mean?

A

To reduce the amount an industry is regulated

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14
Q

What is economic welfare?

A

Quality of life of a population

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15
Q

What are EU directories?

A

Set of checks that EU members must pass ensuring all members have similar or the same legislation

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16
Q

What are EU regulations?

A

Set of laws all EU members must comply with

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17
Q

What is the free rider problem?

A

Once a public good is produced there is no way to control who benefits from it

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18
Q

What is geographical immobility of labour?

A

Occurs where workers find it difficult to relocate to places where jobs exist eg. Working costs

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19
Q

What is government failure?

A

Where government intervention leads to a lessening of economic welfare and a misallocation of resources

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20
Q

What is government intervention?

A

When a government actively intervened and affects market operation

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21
Q

What is immobility of factors of production?

A

When it is hard for factors of production to move across different areas within the economy

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22
Q

What is immobility of labour?

A

The inability of labour to move from one occupation to another. There are two main types, geographical and occupational

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23
Q

What is imperfect information?

A

When an economic agent does not hold all the necessary information to make an informed decision

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24
Q

What is incentive?

A

Something that motivates an agent in economy

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25
Q

What is income inequality?

A

Differences in size of earnings between households/individuals

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26
Q

What are Market distortions?

A

Where interference in a market affects behaviour and prices/output

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27
Q

What is market economy?

A

Where output and prices determined by workings of supply and demand

28
Q

What is market failure?

A

Occurs when the market mechanism leads to a misallocation of resources

29
Q

What is a merit good?

A

Goods where the social costs in consumption decreed the private costs in consumption

30
Q

What is misallocation of resources?

A

Resources are not distributed optimally

31
Q

What does nationalise mean?

A

To convert from private ownership to public (government) ownership

32
Q

What are negative externalities?

A

Effects imposed on society derived from the production or consumption of a good or service

33
Q

What are non-excludables?

A

A good or service where you are unable to prevent non-paying consumers from benefiting or using the good

34
Q

What are non rivals?

A

Where one persons consumption of a good or service doesn’t decrease the amount available for consumption by another consumer

35
Q

What are occupational immobility of labour?

A

Occurs where workers find it difficult to transfer between different occupations due to lack of transferable skills

36
Q

What is outsourcing?

A

When a private sector firm bids to offer a public service

37
Q

What is partial market failure?

A

Occurs when the market is producing a good or service but at the wrong quantity or price

38
Q

What are penalties?

A

Fines or other forms of punishment that make producing output less profitable

39
Q

What are positive externalities?

A

Effects imposed on society derived from the production or consumption of a good or service

40
Q

What is a price ceiling?

A

A price above which trade is illegal

41
Q

What are price controls?

A

Government controls on prices

42
Q

What is a price floor?

A

A price below which trade is illegal

43
Q

What is price mechanism?

A

The way in which prices are determined through forces of supply and demand

44
Q

What is private benefit?

A

Benefits incurred to the individual through consumption or production

45
Q

What is private cost?

A

Costs incurred to the individual through consumption or production

46
Q

What is a private good?

A

Am excludable, rival good

47
Q

What does privatise mean?

A

To convert from public (government) ownership to private ownership

48
Q

What are production externalities?

A

An externality generated through production of a good or service

49
Q

What is the productivity gap?

A

Difference between productivity of UK labour and other countries labour

50
Q

What is property right?

A

Legal ownership of a resource

51
Q

What is a public good?

A

A non excludable, non rival good

52
Q

What is the public sector?

A

The part of the government financed by and controlled by the government

53
Q

What is a quasi public good?

A

A good that isn’t fully non rival and/or not fully non excludable

54
Q

What is rationing?

A

Limiting the amount or quantity of a good

55
Q

What is regulation?

A

Imposing policies, rules, laws, constraints

56
Q

What is regulatory capture?

A

Regulatory bodies become dominated by industries in which they were regulating leading to a decrease in economic welfare

57
Q

What is resource misallocation?

A

When resources are allocated in a way that doesn’t maximise economic welfare

58
Q

What is signalling?

A

Where a change in the price of goods or services that show that supply or demand should be adjusted

59
Q

What are social benefits?

A

The sum of private benefits and external benefits

60
Q

What is social cost?

A

The sum of private costs and external costs

61
Q

What are specific taxes?

A

Taxes that are a set price per unit

62
Q

What is state provision?

A

Where the government provides a good or service

63
Q

What is a subsidy?

A

Payment made by the government to incentivise production of a good

64
Q

What is a tax?

A

Compulsory levy imposed by the government to de incentivise production of a good

65
Q

What are unintended consequences?

A

When the actions of people or a government have consequences that’s we’re not anticipated

66
Q

What are vouchers?

A

Allowances to utilise goods or services at a discount rate

Economics Micro (8 decks)

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