1.3 Market Failure

Question 1

3 types of market failure

Answer 1

Externalities- spill over effects on 3rd parties from consumption/production

Under-provision of public goods-public goods are non rivalry, non excludable goods -> underprovided due to free rider problem

Information gaps-Agents don’t make rational decisions due to asymmetric information

Question 2

Govt Intervention strategies (MMSTRIPS)

Answer 2

Maximum pricing
Minimum pricing
Subsidies
Tax
Regulation
Indirect Taxes
Pollution permits

Question 3

The 2 characteristics of public goods and their meanings

Answer 3

Non rivalry- One persons use doesn’t stop someone else from using it too

Non-excludable- Cannot stop someone from accessing it

Question 4

Free rider problem

Answer 4

Someone receiving benefits from a good without paying for it

Question 5

Asymmetric and Symmetric Info

Answer 5

A- One party has superior knowledge than the other-> information gap
S- Both parties have equal knowledge