The Role of the Market and Government Intervention (HSC SSCE Economics): Flashcards

Tool solving economic problems via price signals in market economy

Where demand & supply of finished goods/services interact

Trade inputs for production: land, labour, capital, enterprise

Resources allocated to satisfy consumer wants effectively

Price mechanism fails to account for social costs/benefits

Creates shortage (excess demand) at below-equilibrium price

Creates surplus (excess supply) at above-equilibrium price

Social costs not considered by producers, e.g. pollution

Non-excludability and non-rivalry; suffer free-rider problem

Products with positive externalities, underconsumed in free market