Market Failure
Saturday, 25 November 2023 13:57
Definitions:
Market failure is when the market is unable to effectively allocate its resources.
Government intervention is when the government try to resolve the market
failure.
Government failure is when the governments intervention to the market failure
has been unsuccessful.
A public good is a good that is provided for all members of society such as
education.
A demerit good is a good that is considered to be harmful for both the consumer
and society such as tobacco.
Negative externality is a cost to a third party outside of the original economic
transaction.
Causes Of Market Failure:
Information Gaps - for example a food company not displaying or incorrectly
displaying the calories and other information about their products.
Public Goods - underproduction of public goods such as police force, may not be
provided because no one has an incentive to pay for it.
Merit Goods - such as education may not be available to everyone as it is under-
produced.
Demerit Goods - such as tobacco may be produced in larger quantities then
available and therefore is over-produced.
Negative Externalities - such as the spill of pollutants, that are not reflected in the
price of the product.
Externality Graphs:
Saturday, 25 November 2023 13:57
Definitions:
Market failure is when the market is unable to effectively allocate its resources.
Government intervention is when the government try to resolve the market
failure.
Government failure is when the governments intervention to the market failure
has been unsuccessful.
A public good is a good that is provided for all members of society such as
education.
A demerit good is a good that is considered to be harmful for both the consumer
and society such as tobacco.
Negative externality is a cost to a third party outside of the original economic
transaction.
Causes Of Market Failure:
Information Gaps - for example a food company not displaying or incorrectly
displaying the calories and other information about their products.
Public Goods - underproduction of public goods such as police force, may not be
provided because no one has an incentive to pay for it.
Merit Goods - such as education may not be available to everyone as it is under-
produced.
Demerit Goods - such as tobacco may be produced in larger quantities then
available and therefore is over-produced.
Negative Externalities - such as the spill of pollutants, that are not reflected in the
price of the product.
Externality Graphs:
