market failure Flashcards
market failure
price mechanism fails to allocate resources efficiently
public good characteristics
non-excludable
non-rivalrous
non-rejectable
non-excludability
the benefits of a public good can be used by anyone, even without paying
non-rival consumption
consumption of one does not restrict the consumption of another, there is no marginal cost of an additional consumer
non rejectable
once supplied, the good cannot be rejected by someone, e.g. flood defence
merit good
a good the the gov believes will be under consumed if left to free market
imperfect information
buyers and or sellers do not have the info to make a decision
demerit good
a good that it unhealthy to consume/socially undesirable
asymmetric info
when one party has more info than the other and uses it for their benefit
causes of imperfect info
misunderstood benefits/costs
complex info
addiction
misleading info
lack of awareness
why consumers act irrationally
can’t calculate all of the cost/benefits
emotional
lack of self control
satisfied rather than maximise
