Chapter 5 Market Failures
Why do supply side market failures occur?
They occur because it is impossible to correctly weigh the costs and benefits in a situation of production.
Why do demand side market failures occur?
They occur because there are situations when there is no way to charge consumers for what they are willing to pay for.
What is it called when demand curves do not reflect consumers' full willingness to pay for a good or service?
Demand-side Market failures
What is a supply-side market failure?
It is when the supply curves do not reflect the full cost of producing a good or service.
Where does the optimal quantity of a public good occur on the collective demand curve?
It occurs where marginal benefit equals marginal cost.
What two characteristics cause a free rider problem
Non rivalry in consumption and Nonexcludability.
What are the names for the causes of demand side and supply side market failures?
Positive externalities and negative externalities.
What part does the opportunity cost play in determining the maximum price a consumer is willing to pay?
The maximum price a consumer is willing to pay depends on how much of the other goods they are willing to give up.
How does the consumer surplus and price relate?
They are inversely proportional; The higher prices reduce consumer surplus, while the lower prices increase it.
What producer surplus?
it is the difference between the actual price a producer receives and the minimum acceptable price that a consumer would have to pay the producer to make a particular unit of output available.
