1.3 Market failure Flashcards
What is complete market failure?
This occurs when markets do not supply products at all.
What is partial market failure?
Occurs when the market does actually fucntion but doesn’t produce the right quantity of a product or at the wrong price.
What are the 3 reasons for market failure?
-Information gaps
-Existance of public goods
-Existance of externalities
What is syemtric information?
This is when the cosumer and producer have the same level of knowledge about a product.
What is asymetric information?
This is when either the producer or the consumer knows more about the product than the other.
Give some examples of ways the government can correct information failure.
-Make producers provide accurate information
-Campaigns
-Pass laws
-Force the publication of data
-Establish regulators and industry standards
What is a public good?
A good that can be used by everyone freely at the same time.
What is a private good?
This is a good that when consumed by one person and is then not available for another to use.
What are the 3 points to check if something is a public or private good?
-Non-excludability
-Non-rival consumption
-Non-rejectable
What does non-excludable mean?
Benefits derived from pure public goods cannot be confined solely to those who have paid for it.
What does non-rival mean?
Each party’s enjoyment of the good or service does not diminish others’.
What does non-rejectable mean?
The collective supply of a pure public good for all means that it cannot be rejected by people.
What are externalities?
Externalities are spill-over effects
from production and consumption
for which no appropriate
compensation is paid. They can be positive or negative.
What is a negative externality?
A negative externality arises where actions of one group results in a negative side effect/impact on a third party.
