Badges: 2
Report Thread starter 5 years ago
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
Badges: 1
Report 5 years ago
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.


Quick Reply

Attached files
Write a reply...
new posts
to top
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.


Are you tempted to change your firm university choice on A-level results day?

Yes, I'll try and go to a uni higher up the league tables (53)
Yes, there is a uni that I prefer and I'll fit in better (15)
No I am happy with my choice (101)
I'm using Clearing when I have my exam results (14)

Watched Threads

View All