4.1.8.6 Market imperfections NOTES

What does imperfect information in a market imply?

• Information is perfectly distributed among all parties

• One party lacks complete knowledge about a product or service

• All parties have equal bargaining power

• All parties have complete knowledge about the product

What is asymmetric information?

• All parties refuse to share information

• Both parties have equal information

• Information is hidden from both the buyer and seller

• One party has more information than the other

How can asymmetric information lead to market failure?

• It ensures fair pricing in the market

• It increases market transparency

• It can lead to the sale of defective products at inflated prices

• It enhances trust among market participants

What is a monopoly?

• A market with only one buyer

• A fully competitive market

• A market with many sellers

• A market dominated by a single seller

What effect does a monopoly have on market prices?

• Decreases prices due to competition

• Ensures an efficient allocation of resources

• Increases consumer choice

• Allows the monopolist to dictate prices

What is meant by the immobility of factors of production?

• All factors are mobile

• Factors cannot easily move between different uses or locations

• Factors can easily move between different uses or locations

• Factors of production do not exist

How does the immobility of labour contribute to market failure?

• It ensures equal job opportunities across regions

• It leads to high employment rates everywhere

• It allows for flexible job markets

• It results in persistent unemployment in certain areas

How does the presence of externalities lead to market failure?

• It ensures efficient resource allocation

• It leads to costs or benefits affecting third parties

• It promotes competitive markets

• It guarantees product quality

What role does government intervention play in correcting market failure?

• It distorts market operations further

• It eliminates all private businesses

• It can help adjust for social costs and benefits

• It reduces public goods provision

What is the impact of public goods on market efficiency?

• They lead to overproduction in the market

• They ensure all goods are privately owned

• They can lead to underproduction if left to private markets

• They have no impact on market operations