1.3.1 Types of market failure

Question 1

Externalities

Answer 1

third-party/spill over affect from production and/or consumption for which no appropriate compensation is paid to one or more third parties affected

Question 2

Information gaps

Answer 2

When either the buyer or the seller does not have access to the information needed for them to make a fully informed decision

Question 3

Negative externalities

Answer 3

One third parties are negatively affected by the spillover effect of production/consumption by imposing external costs on them
This causes social costs to exceeded private costs

Question 4

Positive externalities

Answer 4

When third parties benefit from the spillover effects of production/consumption.
This causes private costs to exceed social costs

Question 5

Market failure

Answer 5

When the competitive outcome of markets is not efficient and/or equitable from the point of view of the economy as a whole

Question 6

Complete market failure

Answer 6

When the market does not supply products at all

Question 7

Partial market failure

Answer 7

when the market functions, but it supplies either the wrong quantity of a product or at the wrong price

Question 8

Public goods

Answer 8

goods which are both non-rivalrous and non-excludable