AQA unit 1 - markets and market failure

That's the thing though. Market failure can exist with positive externalities.

Not enough is supplied, because producers don't have enough incentive, which is where the market fails.

Reply 44

mate it is B, just saw it in my book. It said that Market failure is likely to occur when there are externalities. Either negative/positive i don't know, but i am taking externalities as a general thing.

Reply 45

yeh definately externalities is a bad thing, but i thought positive was a good thing. Oh well, let me ask someone

Reply 46

prash_s90

yeh definitely externalities is a bad thing, but i thought positive was a good thing. Oh well, let me ask someone

yh that is what i was thinking mate, but guest the book proved me wrong. :rolleyes:

Reply 47

roll on the next question even though i don't have jan exams, just a bit of practice.

Reply 48

No, because the positive externalities are not exploited by the supplier. They are under-producing, which is a bad thing. It is hard to get your head around I know :p:

This was what I was trying to explain before:

Reply 49

a small firm is able to buy any amount of raw mat on world markets at the same price. This means that it faces a perfectly

a) elastic demand curve for raw mat
b) inelastic demand curve for the raw mat
c) elastic supply curve for the raw mat
d) inelastic supply curve for the raw mat

time starts nowww

Reply 50

yes you seem right there...now i know where i went wrong last year lol

Reply 51

A i think, but not too sure

Reply 52

02mik_e

A i think, but not too sure

NOOOOOOOOOOOOOOOOOOOO

Reply 53

thought so, therefore it is d or b, going for d

Reply 54

It's perfecty elastic supply. Think about the graph. The price is the same at every quantity. So it is a horizontal line.

Wow, never realised that was animated :cool:

Reply 55

rja has got it in one....correct answer is C

Reply 56

ok now i got to revise for other subjects lol...ille post some more june 07 Q later...revise hard!

Reply 57

Just to add some explanation about perfectly elastic supply.

As soon as this firm buys the raw materials (essentially reducing supply), producers can IMMEDIATELY increase their supply and/or new businesses can IMMEDIATELY enter the market to bring the supply (and therefore price) back to the original point.

This is linked with Perfect Competition in Unit 5, which is a pretty interesting topic. :wink:

Reply 58

adrenaline1989

Got all the same answers as RJA. woop woop!

Reply 59