Unit 1 - Introduction to markets and market failure (9EC0)
Institution
PEARSON (PEARSON)
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Unit 1 - Introduction to markets and market failure (9EC0)
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INFORMATION GAP Example TYPES
↳ g savrinste SUMETRIC
Occurs when
INFORMATION
inacurate , incomplete
, uncertain or ↳ consumers
↳ EXTERNALITIES UNDER-PROVISION
> +
GAPS
-
↳ painkillers addiction
misunderstood dava
Produces OF PUBLIC GOODS
↳ sub optimal
/wrong choice
Tourist Barrass
↳ ↳ cost/benefit a third
party
have same transaction ↳ accuumed consumers +
producers have
receives from an economic
CAUSES ↳ 2nd hand products Info + outside of the market
mechanism
.
non-excludable and
information
perfect >
- economic decisions
non-viral
MORAL HAZARD effects ↳ spill over effect of the production s
↳ rarely the case
/benefits /
good service
Misunderstanding
of
costs consumption a
↳ misallocation of
↳ The or
ASYMMETRIC
↳ consumer knows
resources
free market
intended 2 underprovided in a
painkillers more about their
because of the free-rider
actions than producer (insurer) - imbalance in problem
↳
Complex info ADVERSE SELECTION < information between > Occurs when -
free market fails to allocate
COMPLETEMF
-
specialist products resources > best interests of society
PARTIAL MF
buyer
-
Heath
insurance and seller
most
- - a
be Inefficient allocation
of
↳ Inaccurate/mosleading into LANDLORDS scarce resources ↳ market does not
at all
↳ market functions/exist
"Oversell" benefits -> more
consumption
↳ ↑ rent from tenants
↳ Economic and social supply products ↳
wrong quantily
or
Nagprice DOCTORS wrong price
:
than optimal company Welfare is not maximised ↳ missing
Addiction Private
↳ H1-> overprescribe expensive
, market
↳
Payagein
treatments
SOME STUDENTS Unnecessary
wo
Drugs >
-
can't stop ·
↳ best course
unis Perpetrate inequality ↓ social
POLICIES
+
-
Private social external
dangers
↳ Habitual purchase
↳ Protection Laws
↳
faully good refund costs n benefits :
, ,
buying our of habst
↳Performance table
league
MARKET by the producer directly
envolved in a
~
PRIVATE faced or consumer
doesn transaction
SOCIAL external
private +
involved in the economic
third party
EXTERNAL x
activity
PUBLIC GOODS Non
Non RIVAL
CONSUMPTION
NON-
EXCLUDABLE
> When
-
NEGATIVE externalities exist L POSITIVE externalities
REJECTABLE ↓
WHAT-cause MF
↳ by one social benefits
>
private benifits
problem benifits derived ↳
due to the Nuclear defence from ↳ social cost> Private cost
It neshict can't ↳> can also lead to
of
mossing
markets .
system
,
flood defence project
consumption by
pure
-publicgoods
confined by payers
↳
overproduction - market
ture market failure
other
VALUE :
user
collective consumption goods
-
H Non-payers can benifit at
open
MPB
space, fir
flood MP2 cost the producing benefit to the consumer of
-
defence project came conhol free knowledge marginal cost of no financial cost
↳ fare
producing additional unit
>
consuming
SHADOW PRICING additional
, of an
output
,
↳ dodging
, an unit of
supplying to an FREE Rider freewifi, of output
0 PROBLEM
person
MARKET
exra =
FAILURE ↳
↳ road congestion
underprovision
of good > ME ↳ no of hours M82 < are w society of
producing
on
MSBL Total benefit to
society from consuming
Zeichmane
↳ Private sector markets may fail to supply in part extra unit of output
an extra unit MSB
QUASI PG
-
lost y ,
=
MPB + MEB
> either not
- both
wage MSC : MPC + MEC
en whole the optimum goods Y ↓
or
Quantity of public
COMPENSATION
semi fomthe MEB Benefit
from the consumption
↳ Dure PG the ↳ near PG non MEC cost to 3rd parties to / parties
X
normally provided by private sector
↳ estimate cost of additional of extra unit of output
putting production
of an
↳ unable b supply for a
profit Semo excludable of output
non-rival Possible but difficult/Eet
right on
externality
public goods/funding appropriate society
↳ GOV--what for
frommaking
output of is to exclude
Ex beaches non-paying REVEALED PREFERANCE
eventually consumers
to
become too crowded ↳
fencing a b
park how much willing to pay
CHANGING NATURE avoid an externali
ENCRYPTION For Gov Intervention AGAINST State NEGATIVE POSITIVE MERIT GOODS DEMERIT GOODS
↳ exclude non-payers
↳ still non-viral
↳ No
COMMONHO RESOURCE
owner-
Boa
but non-viral
Wifi cafe > -
less
extra
with
Per Provision PRODUCTION CONSUMPTION CONSUMPTION ↳ under
by
provided
the market
↳ overprovided by
mechanism
market
PUBLIC BAD
Non-viral nature >
-
shong case for becomes a monopoly ↳ Air
pollution ↳ fly-tipping of
↳ Heath programmes
mechanism
GLOBAL PUBLIC GOODS stactories ↳ Healthcare ① In perfect ↳ Drugs-
> LSD
>↑ neg
-
lack of efficiency household washe
effects provided free at the provider >
,
↳ point of use ↳ WMS
neg Many ↳ in fo
-
externalities
loss of social welfare ↳ benifit every county taxation BBC ↓ due t
↳
Damage to environment↳ Effects of passive education
↳ Education ↳ difficult Tobacco
diseases moder slavery web cirses , washe security from war , nule of law , Non-use of funded by license ↳ industrial ocean
smoking
↳
Early years h
↳
lack of ↳ Insurance make rational Addiction ↑
fee
competition crime rate +
,
ons
nuclear fishing
,
>
Help prevent underprovision
-
+
↳ Impact on family
1 public
PRIVATE GOODS under consumption
- > social welfare
es improved
↳ Ecost of fertilizers life of
gambling community spaces value Judgement decisions
Gov so correct
health cosss
,
good >
and alcohol addiction -
and pesticides used ↳ assessed the
some
MF
REJECTABLE cases state will fund
Museums and galleries ② Positive
RIVAL IN CONSUMPTION More eficient provision > due to economies of ↳
value for
-
EXCLUDABLE
needs
+ preferences seale
in
farming ↳ Noise pollution from ↳ possesses
externalities
↳ weapons : to
One
person's consumption-reduces
↳
Noise pollution from
events sports free school meals/nutritional beyond its inherent
provide
↳
ticket to the and private sector will matches I 1
concerts value to
society ↳ other beniss value Judgement - permassive
campaigns
left for others to changes Helps affordability
the amount
+ the airline advice
consume
theatre
and benifit from
access to important
public goods .
eg.
industy Underprovided :
to society
↳ assessed
good don't know other costs to
↳ not willing/ used
↓ income
services for households ① Inperfect information ↳ ability
Individed
to ham costeron society
↳
Private Public Partnerships apart from society
+
↳ gives
Addle sopaya ance to seare resources are
z
↳
inequalities of income ② positive externalities
Overprovided Imperfect into ②
reg
supplying product ~ :
make profit
up in individuals externalities
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