Economics - 9214 OxfordAQA

Market Failure

Aperçu

Everything you have learned so far describes a market that works. Prices rise where goods are wanted, resources follow the prices, and nobody had to be told what to do. This lesson is about the cases where that machinery gets the answer wrong: where the market produces too much of something harmful, or too little of something valuable, and keeps doing so however long it is left alone.

You will learn what economists mean by market failure, why the phrase is about a misallocation of resources rather than about anyone going bankrupt, and how to separate a private cost from a social cost. You will meet externalities, the effects that spill over onto people who were never part of the transaction, in both their negative and positive forms. And you will work through what a government can actually do about it, which is the question the specimen paper devoted its entire second section to.

Objectifs

  1. The meaning of market failure as misallocation of resources
  2. Implications of misallocation of resources
  3. Government intervention
  4. Externalities
  5. Defining externalities
  6. The difference between positive and negative externalities

Carte mentale

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Note de cours

A factory upstream produces dye and discharges its waste into a river. Its accounts are in perfect order: it pays for its chemicals, its workers, its power and its premises. What it does not pay for is the fishing village downstream whose catch collapses, or the households whose water has to be treated before it is drinkable. Those costs are entirely real. They are simply not on anybody's invoice.

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Évaluation de la leçon

Félicitations, vous avez terminé la leçon sur Market Failure. Maintenant que vous avez exploré le concepts et idées clés, il est temps de mettre vos connaissances à lépreuve. Cette section propose une variété de pratiques des questions conçues pour renforcer votre compréhension et vous aider à évaluer votre compréhension de la matière.

Vous rencontrerez un mélange de types de questions, y compris des questions à choix multiple, des questions à réponse courte et des questions de rédaction. Chaque question est soigneusement conçue pour évaluer différents aspects de vos connaissances et de vos compétences en pensée critique.

Utilisez cette section d'évaluation comme une occasion de renforcer votre compréhension du sujet et d'identifier les domaines où vous pourriez avoir besoin d'étudier davantage. Ne soyez pas découragé par les défis que vous rencontrez ; considérez-les plutôt comme des opportunités de croissance et d'amélioration.

  1. Which of the following is an example of a negative externality? A. A firm creates pollution in the production process B. A firm makes a loss and closes down C. A firm pays its workers a low wage D. A firm raises the price of its product Answer: A
  2. Which statement correctly describes a positive externality? A. Private benefit is greater than social benefit B. Private cost is greater than social cost C. Social benefit is greater than private benefit D. Social cost is greater than social benefit Answer: C
  3. Consumption of healthy food creates positive externalities. Which policy is the most appropriate government response? A. A ban on healthy food advertising B. A subsidy for producers of healthy food C. An indirect tax on healthy food D. A tradable permit scheme for healthy food Answer: B
  4. A firm's private cost of production is $60 per unit and the external cost is $18 per unit. What is the social cost per unit? A. $18 B. $42 C. $60 D. $78 Answer: D
  5. Market failure is best described as which of the following? A. A business becoming bankrupt B. A misallocation of resources by the market C. A temporary shortage of a good D. Consumers being unable to afford a product Answer: B

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Livres recommandés

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The Undercover Economist
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Description: Everyday markets taken apart one at a time: coffee shops, supermarkets, rail fares and second-hand cars. The best training there is for spotting scarcity, choice and market power in an unfamiliar context.

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