Market failure Flashcards
What is market failure?
When price mechanism leads to an inefficient allocation of resources and a deadweight loss of economic welfare
What is complete market failure and give examples?
when the market does not supply products at all- there is a missing market.
- national defence
- street lamps
- flood defence
- lighthouse
What is partial market failure and give examples?
when the market functions but it supplies either the wrong quantity of a product or at the wrong price.
- pollution
- education
- monopoly power
What are public goods?
public goods cause market failure due to the problem of missing markets- complete market failure
What are the main characteristics of public goods?
Non-excludable
Non-rival
Non-rejectable
Examples of public goods:
- Flood defence
- Public service broadcasting
- Crime control for a community
- Freely available knowledge
Pure public goods are:
not normally provided by the private sector because they would be unable to supply them for a profit
What is a public bad?
a public bad has negative externalities on people and their communities leading to a significant loss of social welfare
Examples of public bad’s:
- spread of infections diseases
- unauthorised/illegal surveillance by the state
- modern slavery/human trafficking
- environmental threats
- high rates of global inequalities of income and wealth
Examples of global public goods:
- security from war, violence, and crime
- the rule of law, property rights, contract enforcement
- eradication of small pox, ebola, and other diseases
- nonuse/ proliferation of nuclear weapons
- agreements/ measures towards protection of the ozone layer
Tragedy of the commons:
pursuit of individual self-interest is often not good for social efficiency leading to the long term depletion of resources. The resources may become irretrievably damaged
Tragedy of the commons examples:
- Air pollution
- Deforestation
- Fishing
- Traffic jams
- Littering
- Poaching
