Market Failure Flashcards
What are the types of market failure?
Public Goods/ free rider
Externalities
Merit/Demerit goods
Asymmetric information
Monopoly power
Immobility of factors
Inequality of income / wealth
Why do public goods lead to market failure?
Underproduction due to free rider.
Why do externalities lead to market failure?
Negative externalities are overproduced and positive externalities are under produced.
Why do De/Merit goods lead to market failure?
The Demerit is over produced/over consumed and merit goods are under consumed/under produced.
Why does Monopoly power lead to market failure?
The goods are underproduced whilst also being set at a higher price.
Examples of the third party affect?
When people smoke they suffer from lung diseases which would then cause them to seek medical help from the NHS wasting the money of the government on these negative externalities. One way the government can intervene is by raising the price floor on cigarettes so that it can be more expensive so this will mean that less people will be willing and able to buy this so demand will decrease/ shift inwards.
What are some Gov Interventions?
Tax
Subsidies
Advertising
Regulation
Direct provision
Extending property rights
Tradeable Permits
Which and what group of economist was an advocate of leaving it to the market?
Monetary Economist: Milton Friedman argued that the government stay out of the economy and let the free market work.
Which and what group of economist wanted the government to intervene?
Keynesian economist: Keynes argued that governments should solve problems in the short run rather than wait for market forces to fix things over the long run.
