3.1 Market Failure Flashcards
Market failure is when the price mechanism leads to?
- inefficient allocation of resources
- a deadweight loss of economic welfare
What are the two types of market failure?
- complete market failure
- partial market failure
What is complete market failure?
- when the market does not supply products at all (there is a missing market)
Examples of complete market failure?
- street lights
- army
- sea defenses
- lighthouses
What is partial market failure?
when the markets functions but it supplies either the wrong quantity of a product or at the wrong price
Examples of partial market failure?
- pollution
- education
- alcohol
What are public goods?
cause market failure due to the problem of missing markets
What are public goods an example of?
complete market failure
What are the three characteristics of a public 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 is non-rival consumption?
each party’s enjoyment of the good does not diminish from others enjoyment
WHat is non-rejectable?
collective supply of a pure public good for all means that it cannot be rejected by people
WHat is the nature of pure public goods?
hard to protect property rights
Give examples of public goods?
- flood defenses
What do public goods suffer from?
a missing market or a complete market failure
WHat does the free rider program lead to?
no provision of a good by private business and thus cause complete market failure
What is the free rider problem?
People benefiting from things they have not payed for
What is causing a blurring of the distinction between public and private goods?
technology:
- encryption allows suppliers to exclude non payers
WHat is a quasi public good?
a near public good
- semi non-rival
- semi non-excludable
What is a social bad?
has negative externalities on people and their communitties leading to a significant loss of social welfare
Give examples of social bads?
- spread of disease (covid)
- web viruses
- modern slavery
- discrimination in labour markets
What are global public goods?
benefit every country, irrespective of which ones provde them
Examples of global public goods?
- security from war
- rule of law
- eradiction of diseases
what is the tragedy of the commons?
a problem in economics that occurs when individuals neglect the well-being of society in the pursuit of personal gain
What is the tragedy of the commons caused by?
lack of property rights meaning that a government/ community cannot easily protect the resource
