8.2 the meaning of market failure Flashcards
what is market failure
when the price mechanisms fail to efficiently allocate scarce recourses - they are not devoted to the use that gives society the most welfare
what is complete market failure
unless the good/service is provided outside the mechanism, there wouldn’t be a market for them
what is partial market failure
when the private sector may partially provide it but the whore price or quantity eg private healthcare
why does market failure happen
private costs and benefits are accounted for by the market but often the external consequences get ignored meaning there can be over or under consumptions of some goods
information
what is the social benefit
private benefit + external benefits
where is the socially optimal quantity or allocatively effect quantity
where it is allocatively efficient to produce and consume usually a different quantity to the free market quantity
maximises social welfare
MSC=MSB
what can cause market failure
public goods externalities merit and demerit goods monopolies and other markets inequalities in the distribution of income imperfect/asymetric information
