Market Failures and Economic Concepts

These flashcards cover key concepts related to market failures, including definitions, examples, and implications in economics.

What is market failure?

Market failure occurs when supply and demand do not lead to an efficient outcome.

What is an example of an externality?

Driving cars creates benefits but also causes pollution and traffic congestion that are not fully considered by individual drivers.

What is government failure?

Government failure occurs when regulations create inefficiencies that lead to underproduction or overproduction.

What is market power?

Market power refers to the ability of a company to control prices or supply in a market, often leading to monopolistic practices.

What does asymmetric information mean?

Asymmetric information occurs when one party in a transaction has more or better information than the other, affecting market efficiency.

What does irrationality refer to in economic terms?

Irrationality refers to systematic errors in decision making that prevent individuals from following their marginal costs and benefits.

What is the role of behavioral economics?

Behavioral economics studies how psychological factors influence economic decision making, often leading to market inefficiencies.

What can sometimes be a solution to market failures?

Government action can address market failures, but government itself can also fail.