1.3 (market failure)

Question 1

types of market failure

Answer 1

• public goods
• externalities
• information failure

Question 2

public goods

Answer 2

non-excludable - when provided for one, impossible to stop others benefitting
non-rival - as more is consumed, benefit is not lost to those already consuming
‘free rider’ - when someone pays for something and others benefit so feel no need to purchase themselves
quasi goods - only non-rivalrous, exclusion of people benefitting from a public good (used to try solve the ‘free rider’ problem)

Question 3

externalities

Answer 3

When someone who is not directly involved in an economic decision is still affected by that decision leading to an inefficient allocation of resources.