Theme 1: Introduction to Markets and
Market Failure (1.3 Market failure)
Asymmetric information? - correct answer-leads to market failure, unequal knowledge
between consumers and producers. This can lead to the misallocation of resources,
consumers may pay too much or too little and firms may produce incorrect amounts.
Difference between private and social costs? - correct answer-Private costs are the costs to
economic agents involved directly in an economic transaction,
Social costs are the private costs plus external costs,
Difference between social and private benefit? - correct answer-Private benefit derived from
the consumption of a good or the firms revenue from selling a good.
Social benefit is the private benefits plus external benefits.
What are externalities? - correct answer-- is the cost or benefit a third party receives from an
economic transaction outside the market mechanism.
What are Quasi public goods? - correct answer-non-pure public goods, characteristics of
both public and private goods, partially provided by the free market, roads.
Semi-excludable, semi-non-rival.
What are the 3 types of market failure? - correct answer-- Externalities
- The under provision of public goods
- Information gaps
What are the governmental policies for negative externalities? - correct answer-Indirect
taxes - reduce quantity of demerit goods being consumed, this internalises the externalitiy.
Subsidies - encourage consumption of merit goods
Regulation - enforce less consumption of goods, bans additionally are enforced to harmful
goods.
Provide good directly - government could provide public goods which are underprovided in
the free market.
Provide Information - no information failure, consumers and firms can make informed
economic decisions.
Personal carbon allowances - trades and firms can pollute a certain amount.
Property rights - encourages innovation for entrepreneurs can create ideas.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Hkane. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
