1.3 Market failure

Question 1

Define market failure

Answer 1

Market failure is where the free market mechanism fails to achieve economic efficiency and therefore social welfare maximisation.

Question 2

Define non- rival

Answer 2

my consumption of a good doesnt affect the consumption for other

Question 3

Define non- excludable

Answer 3

Once provided, its diffuclt to stop non- payers from using it, which leads to the free rider problem

Question 4

Optimising our own self interest

Tragedy of the commons

Answer 4

The pursuit of individual self interest is often not good for social efficiency, which leads to long term depletion of resources