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OCR F581 - Few queries

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    • Thread Starter

    Hey all,

    Just wondering if someone help me with a few statements in the slyabus as to what it means.

    -Discuss whethet competitive markets always lead to allocative efficiency.

    -Explain how positive externalities lead to market failure.

    Thank you

    Yo, the first one basically is asking ; By having lots of firms in a market against eachother (i.e topman, new look, river island etc) does this lead to firms making sure the consumer is fully satisfied (basically did the economic transaction go smoothly at the best price available with no problems at all) the allocative efficiency point is where Supply meets demand

    It does because firms have to use their scarce resources even more wisely. Otherwise if not, they will have a supply that does not meet demand (because consumers might not want the good they're making) and eventually go bankrupt.

    2) an example is a lighthouse. If a lighthouse is built and payed for completely by one fisherman. Then only that fisherman should get all the benefits because he payed the cost. However other fisherman gain the benefit of the lighthouse even though they had no interaction with the cost whatsoever. This means THE SOCIAL BENEFIT is greater than THE PRIVATE BENEFIT. Therefore leading to a market failure because there allocation of goods and services was not efficient.

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