1.8.6 Market imperfections

• Products in market imperfections are identical, unlike in perfect competition.

  False
• Information asymmetry occurs when all buyers and sellers have equal access to information.

  False
• Market imperfections always lead to higher prices for consumers.


  True
• What are examples of barriers to entry in a market?

  High startup costs, patents
• Non-homogeneous products are goods and services that differ in quality, branding, or features
• Overall economic efficiency declines due to market imperfections leading to allocative, productive, and dynamic inefficiencies
• Market imperfections prevent efficient resource allocation, leading to market failure.

  True
• What is asymmetric information in markets?

  Unequal access to information
• Barriers to entry are obstacles preventing new firms from entering the market
• Market imperfections prevent the efficient allocation of resources
• Antitrust policies promote competition by preventing monopolistic or oligopolistic behavior
• What are market imperfections and what do they prevent?

  Deviations from perfect competition, prevent efficient resource allocation
• Match the type of market imperfection with its characteristic:

  Monopoly ↔️ Single seller with price control

  Oligopoly ↔️ Few large sellers influencing prices

  Monopolistic Competition ↔️ Many sellers with differentiated products

  Monopsony ↔️ Single buyer influencing prices
• Order the steps in the chain of consequences starting from market imperfections:

  1️⃣ Market imperfections occur

  2️⃣ Inefficient allocation of resources

  3️⃣ Market failure
• Firms with non-homogeneous products have some degree of price control.
• Adverse selection arises from unequal access to relevant information
• Barriers to entry are obstacles that prevent new firms from entering the market
• What are the effects of market imperfections on consumers?

  Higher prices, reduced choice
• What are three key characteristics of market imperfections?

  Limited information, barriers to entry, non-homogeneous products
• Order the causes of market imperfections based on their definitions:

  1️⃣ Barriers to Entry: Obstacles preventing new firms from entering the market

  2️⃣ Asymmetric Information: Unequal access to information between buyers and sellers

  3️⃣ Non-Homogeneous Products: Goods and services differing in quality, branding, or features
• Non-homogeneous products differ in quality, branding, or features
• What is the impact of asymmetric information on lenders?

  Higher interest rates
• A monopoly can charge higher prices and produce less output than perfect competition.


  True
• How does the provision of public goods improve social welfare?

  Positive externalities
• In perfect competition, there are many firms, whereas in market imperfections, there are few
• In a monopsony, there is a single buyer
• What is the outcome of asymmetric information in lending markets?

  Moral hazard
• Moral hazard occurs when sellers act against buyers' interests due to asymmetric information.


  True
• Match the cause of market imperfections with its impact:

  Barriers to Entry ↔️ Reduced competition

  Asymmetric Information ↔️ Market inefficiencies

  Non-Homogeneous Products ↔️ Consumer premiums
• Adverse selection occurs when buyers are unaware of product quality.


  True
• Incumbent firms benefit from market imperfections due to increased market power.


  True
• In perfect competition, the number of firms is many
• Asymmetric information in lending can lead to moral hazard
• High startup costs can reduce competition in an industry.


  True
• Match the effect of market imperfections with its explanation:

  Higher prices ↔️ Limited competition

  Reduced choice ↔️ Information asymmetry

  Increased market power ↔️ Barriers to entry
• What is the purpose of regulation as a government intervention strategy?

  Correct market failures
• Antitrust policies are well-suited to tackle monopoly power.


  True