1.3 Market failure

Question 1

a) Understanding of market failure

Question 2

o externalities

Question 3

a) Distinction between private costs, external costs and
social costs

Question 4

b) Distinction between private benefits, external benefits
and social benefits

Question 5

c) Use of a diagram to illustrate:
o the external costs of production using marginal
analysis
o the distinction between market equilibrium and social
optimum position
o identification of welfare loss area

Question 6

d) Use of a diagram to illustrate:
o the external benefits of consumption using marginal
analysis
o the distinction between market equilibrium and social
optimum position
o identification of welfare gain area

Question 7

e) The impact on economic agents of externalities and
government intervention in various markets

Question 8

a) Distinction between public and private goods using the
concepts of non-rivalry and non-excludability

Question 9

b) Why public goods may not be provided by the private
sector: the free rider problem

Question 10

a) The distinction between symmetric and asymmetric
information

Question 11

b) How imperfect market information may lead to a
misallocation of resources

Question 12

a) Purpose of intervention with reference to market failure
and using diagrams in various contexts:
o indirect taxation (ad valorem and specific)
o subsidies
o maximum and minimum prices

Question 13

b) Other methods of government intervention:
o trade pollution permits
o state provision of public goods
o provision of information
o regulation

Question 14

a) Understanding of government failure as intervention that
results in a net welfare loss

Question 15

b) Causes of government failure:
o distortion of price signals

Question 16

c) Government failure in various markets

Question 17

explain the following problems
- free rider
-tragedy of the commons