3.1 Market Failure

Question 1

Market failure is when the price mechanism leads to?

Answer 1

• inefficient allocation of resources

- a deadweight loss of economic welfare

Question 2

What are the two types of market failure?

Answer 2

• complete market failure

- partial market failure

Question 3

What is complete market failure?

Answer 3

• when the market does not supply products at all (there is a missing market)

Question 4

Examples of complete market failure?

Answer 4

• street lights
• army
• sea defenses
• lighthouses

Question 5

What is partial market failure?

Answer 5

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

Question 6

Examples of partial market failure?

Answer 6

• pollution
• education
• alcohol

Question 7

What are public goods?

Answer 7

cause market failure due to the problem of missing markets

Question 8

What are public goods an example of?

Answer 8

complete market failure

Question 9

What are the three characteristics of a public good?

Answer 9

• non excludability
• non rival consumption
• non rejectable

Question 10

WHat does non excludable mean?

Answer 10

benefits derived from pure public goods cannot be confined solely to those who have paid for it

Question 11

What is non-rival consumption?

Answer 11

each party’s enjoyment of the good does not diminish from others enjoyment

Question 12

WHat is non-rejectable?

Answer 12

collective supply of a pure public good for all means that it cannot be rejected by people

Question 13

WHat is the nature of pure public goods?

Answer 13

hard to protect property rights

Question 14

Give examples of public goods?

Answer 14

• flood defenses

Question 15

What do public goods suffer from?

Answer 15

a missing market or a complete market failure

Question 16

WHat does the free rider program lead to?

Answer 16

no provision of a good by private business and thus cause complete market failure

Question 17

What is the free rider problem?

Answer 17

People benefiting from things they have not payed for

Question 18

What is causing a blurring of the distinction between public and private goods?

Answer 18

technology:

- encryption allows suppliers to exclude non payers

Question 19

WHat is a quasi public good?

Answer 19

a near public good

• semi non-rival
• semi non-excludable

Question 20

What is a social bad?

Answer 20

has negative externalities on people and their communitties leading to a significant loss of social welfare

Question 21

Give examples of social bads?

Answer 21

• spread of disease (covid)
• web viruses
• modern slavery
• discrimination in labour markets

Question 22

What are global public goods?

Answer 22

benefit every country, irrespective of which ones provde them

Question 23

Examples of global public goods?

Answer 23

• security from war
• rule of law
• eradiction of diseases

Question 24

what is the tragedy of the commons?

Answer 24

a problem in economics that occurs when individuals neglect the well-being of society in the pursuit of personal gain

Question 25

What is the tragedy of the commons caused by?

Answer 25

lack of property rights meaning that a government/ community cannot easily protect the resource