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Economics 1.3.1
Economics- Edexcel 1.3.1
| Term | Definition |
|---|---|
| main role of the price mechanism in a free-market economy | allocate scarce resources efficiently |
| market failure exists when? | the competitive outcome of markets is not effective and/or equitable from the point of view of society because the private benefits or costs that the market confers on businesses diverge from the benefits to society |
| key cause of market failure | an inequitable allocation of resources and unequal factor incomes arising from the free-market mechanism |
| market failure definition | the economic situation defined by an inefficient distribution of goods and services in the free market |
| complete market failure | happens when the market does not supply products at all |
| example of complete market failure | pure public goods because the market won’t provide them as they are non-excludable |
| partial market failure | happens when the market functions but it supplies either the wrong quantity of a product or at the wrong price |
| example of partial market failure | negative externalities such as pollution from production or consumption |
| property rights | confer legal control or ownership |
| externalities | indirect cost or benefit to an uninvolved 3rd party that arises as an effect of another party’s activity |
| tragedy of the commons | situation where individuals with access to a public resource (a common) act in their own interest and ultimately deplete the resource |
| private property | a key requirement for a market system as if something is to be bought and sold then it must be possible to claim the right to own it |
| state regulation | a way to protect property rights in order for markets to operate efficiently |
| state regulation definition | set of rules imposed by government that seek to modify or determine the behaviour of firms or organisations |
| if an asset is unowned | no one has an incentive to protect it from abuse |
| failure to protect property rights leads to | the tragedy of the commons |
| examples of tragedy of the commons | includes the overuse of common grazing land and the long-term decline of fish stocks |
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