1.3.1

Question 1

When does market failure occur

Answer 1

When there is an inefficient allocation of scarce resources

Question 2

Types of market failure

Answer 2

• externalities
• the under- provision of public goods
• information gaps

Question 3

Externalities

Answer 3

An externality is the cost of benefit a third party receives from an economic transaction outside the market mechanism

Question 4

Public goods

Answer 4

They’re non-excludable and non-rival, they are under provided in a free market because of the free-rider problem

Question 5

Information gaps

Answer 5

Assumed that consumers and producers have perfect information when making economic decisions- not true