Market Failure Flashcards
What is market failure
when free market fails to allocate resources effectively
What are the 3 types of goods that can cause a missing market
Public
Merit
De-merit
what is a missing market
when there is an obstruction in allocating efficiently GaS
What is a merit good
a good we underestimate the benefit of leading to under provided and cosumption in free market
What are examples of a merit goof
library, education, musuems and vaccines
What are de merit goods
goods we underestimate the harm of leading to over consumption therefore over provision in free market
what are examples of de merit goods
cigarettes alcohol
What is government intervention
when government intervenes in free market to alter consumer decisions
aiming to decrease negative externalities and increase positive
What are the 3 benefits with a positive externality
private benefit - individual
social benefit - society
external benefit - difference between social and private
What are the 3 costs with a negative externality
private cost - individual
social cost - society
external cost - difference between social and private
Why might governments make market failure worse when intervening
imperfect imformation
What 3 methods of intervention are commonly used by government
taxation (indirect) on de merit goods
subsidies (improve education etc.)
Regulation (rules)
