45 terms in 4.1.8
Competition policy
Competition policy covers the rules governments use to stop firms abusing market power. In the UK, the Competition and M
The market mechanism, market failure and government intervention in markets
Competition policy
Competition policy can protect consumers and boost efficiency. But it also carries real costs — enforcement is expensive
The market mechanism, market failure and government intervention in markets
Competition policy
When firms gain monopoly power — the ability to dominate a market and push prices above competitive levels — consumers c
The market mechanism, market failure and government intervention in markets
Government failure
Government failure happens when a government tries to fix an economic problem but makes resource allocation worse instea
The market mechanism, market failure and government intervention in markets
Government failure
Governments can make economic problems worse for three key reasons. They may lack good data, pursue goals that clash wit
The market mechanism, market failure and government intervention in markets
Government failure
Sometimes government intervention makes resource allocation worse, not better. Instead of fixing a market problem, the p
The market mechanism, market failure and government intervention in markets
Government failure
When governments try to fix a problem in a market, their policy can accidentally create new problems they never planned
The market mechanism, market failure and government intervention in markets
Government failure
When governments step in to correct market failure — where markets allocate resources inefficiently — their intervention
The market mechanism, market failure and government intervention in markets
Government intervention in markets
When free markets produce bad outcomes — too much pollution, too little healthcare — governments use that failure as a r
The market mechanism, market failure and government intervention in markets
Government intervention in markets
Governments shape what gets produced and consumed in an economy. They do this by spending money, charging taxes, and set
The market mechanism, market failure and government intervention in markets
Government intervention in markets
Governments pursue several goals at once — such as fairness, growth, and a clean environment. The goal they prioritise s
The market mechanism, market failure and government intervention in markets
Government intervention in markets
Governments use tools like taxes, subsidies, and rules to fix markets that produce the wrong amount of a good. Each tool
The market mechanism, market failure and government intervention in markets
Government intervention in markets
When markets fail — producing outcomes that are inefficient or unfair, such as too much pollution or too little provisio
The market mechanism, market failure and government intervention in markets
How markets and prices allocate resources
Prices do three jobs at once: they tell producers and consumers what is scarce, they change behaviour by making some cho
The market mechanism, market failure and government intervention in markets
How markets and prices allocate resources
The price mechanism allocates resources through supply and demand. It does this well in some situations, but it also pro
The market mechanism, market failure and government intervention in markets
How markets and prices allocate resources
In a market economy, prices do far more than just show what something costs — they act as signals that communicate infor
The market mechanism, market failure and government intervention in markets
Market imperfections
Markets work best when buyers and sellers know exactly what they are buying and selling. When one side knows far more th
The market mechanism, market failure and government intervention in markets
Market imperfections
A monopoly is a market dominated by one firm. That firm can charge higher prices and produce less than is best for socie
The market mechanism, market failure and government intervention in markets
Market imperfections
Factor immobility means workers or capital cannot easily move to where they are needed most. This stops markets from all
The market mechanism, market failure and government intervention in markets
Market imperfections
Even when externalities are absent, markets can still fail because of structural flaws in how they operate. Information
The market mechanism, market failure and government intervention in markets
Merit and demerit goods
Economists label some goods as merit goods and others as demerit goods. These labels reflect society's opinion about wha
The market mechanism, market failure and government intervention in markets
Merit and demerit goods
Merit goods create positive externalities — benefits that spill over to people beyond the buyer. Demerit goods create ne
The market mechanism, market failure and government intervention in markets
Merit and demerit goods
Consumers often lack accurate information about how good or harmful a product really is. This causes them to buy too lit
The market mechanism, market failure and government intervention in markets
Merit and demerit goods
Some goods are classified as merit goods — things society considers under-consumed, like education or healthcare — while
The market mechanism, market failure and government intervention in markets
Positive and negative externalities in consumption and production
An externality occurs when a transaction affects someone outside it. The cost or benefit felt by that third party is not
The market mechanism, market failure and government intervention in markets
Positive and negative externalities in consumption and production
When a producer or consumer ignores costs they impose on others, they produce or consume too much. When they ignore bene
The market mechanism, market failure and government intervention in markets
Positive and negative externalities in consumption and production
When nobody owns a resource, producers and consumers can use it freely without paying for any damage they cause. This me
The market mechanism, market failure and government intervention in markets
Positive and negative externalities in consumption and production
Externalities arise when the actions of producers or consumers create costs or benefits that fall on third parties — peo
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
A pure public good has two key features. One person using it does not reduce how much others can use it, and nobody can
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
A private good gets used up when one person consumes it, and sellers can stop others from having it. A public good does
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
A quasi-public good starts out like a public good but loses one of its key features under certain conditions. Congestion
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
Technology can change whether a good counts as a public good. When TV signals became encrypted, broadcasters could exclu
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
When a good is free to use once provided, people can enjoy it without paying. This removes any incentive for private fir
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
When everyone can freely use a shared resource, each person takes as much as they can. This individually rational behavi
The market mechanism, market failure and government intervention in markets
Public goods, private goods and quasi-public goods
Some goods cannot be provided effectively by the free market because they are non-rival — one person's use does not redu
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
Public ownership means the government owns and runs a firm or industry. This can serve society's needs, but it can also
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
Privatisation means the government sells a state-owned industry to private owners. Supporters say private firms perform
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
Regulation means governments set rules that firms must follow. It can fix market failures, but it can also create new pr
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
Deregulation means removing government rules from a market. It can boost competition and lower prices, but it can also a
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
Regulatory capture happens when a regulator starts protecting the industry it oversees instead of the public. The regula
The market mechanism, market failure and government intervention in markets
Public ownership, privatisation, regulation and deregulation of markets
When markets fail — producing the wrong quantity of a good or allowing firms to exploit monopoly power — governments mus
The market mechanism, market failure and government intervention in markets
The meaning of market failure
Market failure happens when a market produces the wrong amount of a good or service. Society ends up with too much of so
The market mechanism, market failure and government intervention in markets
The meaning of market failure
Markets can fail in two ways. Partial market failure means a market exists but produces the wrong amount. Complete marke
The market mechanism, market failure and government intervention in markets
The meaning of market failure
Several distinct problems can cause markets to misallocate resources. These include ignored side-effects on third partie
The market mechanism, market failure and government intervention in markets
The meaning of market failure
Market failure occurs when the price mechanism — the system by which prices signal what to produce, how much, and for wh
The market mechanism, market failure and government intervention in markets