Market Failure
This term describes a situation where the allocation of goods and services is not efficient, often leading to either underproduction or overproduction of certain goods or services in a market.
What is a market failure?
the tendency to overuse a common resource
What is the tragedy of the commons?
The cost or benefit of a good or service is not fully accounted for by the buyer or seller, leading to an inefficient allocation of resources.
What is an externality?
the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices
What is market power?
As price increases quantity supplied increases, as supply decreases quantity supplied decreases.
What is the law of supply?
The way that economists assume most people act which can lead to misallocation of resources and market failures.
What is their own self interest?
What are the conditions for the tragedy of the commons to occur?
A payment made to a firm or consumer to encourage more positive externalities.
What is a subsidy?
in this market structure, brands need to advertise to ensure that people will buy their product over a competitor as their products are similar but differentiated.
What is monopolistic competition?
As price increases quantity demanded decreases, as price decreases quantity demanded increases.
What is law of demand?
the property of a product whereby the seller cannot keep nonpayers (free riders) from consuming the product
What is nonexcludable?
nonexcludable and nonrivalrous
What are the conditions for public goods market failure to occur?
A payment a firm or consumer must make to the government in an effort to reduce negative externalities and put that cost back into the transaction (i.e. extra cost to buy cigarettes).
What is a tax?
A market structure with the LEAST amount of consumer choice which leads to a misallocation of resources.
What is a monopoly?
A government enacts a tax on producers to remedy a negative externality in the oil market.
What is a decrease in supply?
the property of a product whereby one party’s consumption of the product does not prevent another party’s consumption of the product
What is nonrivalrous?
people who illegally download music, people who benefit from the military without paying taxes, teenagers who live with their parents without paying
What are free riders?
Your neighbor regularly throws garbage in the yard and has old cars rusting in the driveway. This drops the property value of the houses in the neighborhood.
What is a negative externality?
Laws that are used to promote competition and ensure consumers pay fair prices.
What is antitrust legislation?
A government subsidizes the purchasing of new electric cars to encourage a positive externality.
What is an increase in demand?
Ways to solve market failures like the tragedy of the commons
What is Property rights, Collective action agreement, or Government as regulator?
An area off the coast of Maine has great commercial fishing. All the fisherman want to make a profit but their consumption of the fish is driving down fish populations, making fishing more challenging for everyone.
What is an example of the tragedy of the commons?
Your neighbor regularly mows their lawn, plants flowers, and paints their fence and house with fresh paint every year. Doing so benefits the whole neighborhood as it makes the entire area look pretty.
What is a positive externality?
A recent antitrust case was brought against realtors who were working together in order to keep their commission prices high for consumers. What market structure does this represent?
What are oligopolies?
Due to a loss in popularity caused by negative social pressure, cigarette manufacturers have to let go of a large portion of their workforce.
What is a decrease in supply?