Market Failure

Question 1

What is market failure

Answer 1

it occurs when there is a misallocation of resources within an economy

Question 2

What does market failure mean

Answer 2

it means that society would have been better off if the resources were allocated in a different way. Therefore market failure creates a welfare loss for society

Question 3

What is complete market failure

Answer 3

When the market fails to produce certain goods and services, despite being in demand. this may be due to certain conditions in which firms are unlikely to enter the market. The market then simply doesn’t supply products at all (missing market)

Question 4

Which goods does missing markets occur for

Answer 4

public goods (national defence, prison systems, clean air, street lighting)

Question 5

What is partial market failure

Answer 5

Occurs when the market functions, but produces the wrong quantity of a good or service

Question 6

partial market failure examples

Answer 6

pollution, underprovision of vaccines, information gaps

Question 7

What happens if a good is provided too cheaply

Answer 7

the market partially fails, this leads to over consumption and production