Market Failure Flashcards
Market failure
When a market fails to allocate recourses efficiently
Complete market failure
There is no market because the functions of prices have broken down
Partial market failure
When the market functions but produces the wrong quantity of G/S
Examples of market failure (6)
Public goods
Unequal distribution of wealth
Monopolies
Positive externalities
Immobility
Negative externalities
The free rider problem
An individual accessing a resources others have paid for
Externalities
Spill over effects onto a third party that is not involved in the economic transaction
Pure public good features (3)
Non-excludable
Non-rival
Non-rejectable
Pure public good examples
Street lights
Light house
Police/defence
Quasi-public good features (2)
• Semi-non excludable
• Semi-non rival
Quasi-public good examples (3)
Roads
Beach/park
Fireworks
Absolute poverty
When an individual can’t afford the basic necessities to survive
Relative poverty
A level of household income considerably lower than the median level of income within a country (usually 60% lower than the median income)
Cons of Inequality (3)
Social unrest
Poverty cycle
Loss of allocative efficiency
Pros of inequality (4)
Hard-word pays “fairness”
Incentive effect
Trickle down effect
Encourages entrepreneurship
The Tragedy of the Commons
A situation in which individuals access a public resource in their own self interest, this depleats the source for everyone else
