8.2 The Meaning Of Market Failure

Question 1

What is market failure?

Answer 1

When the market mechanism leads to a misallocation of resources in the economy, either completely failing to provide a good or service or providing the wrong quantity

Question 2

What is complete market failure?

Answer 2

A market fails to function at all

Question 3

What is the result of compete market failure?

Answer 3

A missing market(market does not exist)

Question 4

What is partial market failure?

Answer 4

When the market functions but produces the wrong quantity of a good or service

Question 5

What is a missing market?

Answer 5

A situation where the is no market because the function of prices have broken down

Question 6

In partial market failure what are the two possible situation

Answer 6

Good is too cheap(over produced and under consumed

Good is too expensive (under produced and over consumed)

Question 7

What two things often are associated with market failure?

Answer 7

-distribution of income
-inequalities

Question 8

When all four of the function of prices work well does market failure exist?

Answer 8

No

Question 9

If one of the four price functions break down does market failure occur?

Answer 9

Yes and in the case of pure public goods and externalities it breaks down completely

Question 10

Why is the externality such as pollution an example of market failure

Answer 10

Affects 3rd parties not them, no incentive to not pollute and therefore it leads to market failure