market failure

• What occurs when the free market fails to allocate resources?

  Market failure
• Why is it crucial to watch the previous video on allocative efficiency?

  It explains the socially optimum level of output
• What are externalities in the context of market failure?

  Negative or positive impacts on third parties
• How do consumers and firms typically respond to externalities?

  They ignore impacts on third parties
• What is the issue with self-interest in the context of external costs?

  It leads to ignoring external costs and benefits
• What are merit and demerit goods?

  Goods that are better or worse than perceived
• What causes information failure in the market?

  Imperfect information about goods and services
• What is the free rider problem associated with public goods?

  Firms will not supply public goods
• How do common access resources contribute to market failure?

  They are often over-consumed and over-produced
• What does income inequality imply in terms of market failure?

  It raises concerns about fairness in the economy
• What is the assumption about competition in a free market?

  There are many buyers and sellers
• What happens when there are high barriers to entry in a market?

  It may lead to monopoly power
• How does monopoly power affect consumers?

  It leads to higher prices and lower quantities
• What is factor immobility in the labor market?

  Inability of workers to move for jobs
• What can result from structural unemployment in the labor market?

  Misallocation of resources in the labor market
• What are the main causes of market failure?

  • Externalities (negative and positive)
  • Merit and demerit goods
  • Information failure
  • Free rider problem with public goods
  • Over-consumption of common access resources
  • Income inequality
  • Monopoly power
  • Factor immobility
• What is the definition of market failure?

  • When the free market fails to allocate resources efficiently
  • Results in socially suboptimal levels of output
• What is the significance of the socially optimum level of output?

  • It is crucial for allocative efficiency
  • Ensures resources are allocated at the best level for society
• What occurs during market failure?

  The free market fails to allocate resources
• Why is it crucial to watch the previous video on allocative efficiency?

  To understand the socially optimum level of output
• What are externalities in the context of market failure?

  Negative or positive impacts on third parties
• How do consumers and firms typically respond to externalities?

  They ignore impacts on third parties
• What is the relationship between self-interest and external costs in market failure?

  Self-interest leads to ignoring external costs
• What are merit and demerit goods?

  Goods that are better or worse than perceived
• What causes information failure in the context of merit and demerit goods?

  Imperfect information leads to irrational decisions
• What is the free rider problem associated with public goods?

  Firms will not supply public goods
• How do common access resources contribute to market failure?

  They are often over-consumed and over-produced
• How does income inequality relate to market failure?

  It raises concerns about fairness in allocation
• What is the assumption about sellers in a free market?

  There are many buyers and sellers
• What happens when there are high barriers to entry in a market?

  It may lead to monopoly power
• What is the result of monopoly power on consumers?

  Consumers face higher prices and lower quantities
• What is factor immobility in the labor market?

  Workers cannot easily move to new jobs
• How does structural unemployment relate to market failure?

  It leads to misallocation of labor resources
• What are the main causes of market failure?

  • Externalities (negative and positive)
  • Merit and demerit goods
  • Public goods and free rider problem
  • Common access resources
  • Income inequality
  • Monopoly power
  • Factor immobility
• How do externalities affect resource allocation in a free market?

  • Consumers ignore third-party impacts
  • Firms overlook external costs in production
  • Leads to inefficient resource allocation
• What is the definition of allocative efficiency?

  • Resources are allocated at socially optimum levels
  • Reflects true costs and benefits to society
• What is the significance of watching the previous video on allocative efficiency?

  • Provides context for understanding market failure
  • Explains the concept of socially optimum output
• What is achieved at free market equilibrium?

  Efficient allocation of scarce resources
• Why does efficient allocation occur at equilibrium in a free market?

  Because supply equals demand at that point
• What are private costs?

  Costs of production for a producer