market failure

Question 1

what is market failure ?

Answer 1

when markets fail to deliver an efficient allocation

Question 2

how do markets fail in allocating resources?

Answer 2

• markets produce to much or little of something
• A market for goods and service that
  should exist, doesn’t exist at all.

Question 3

what are the types of market share ?

Answer 3

• Public Goods
• Merit / De-Merit Goods
• Externalities
• Absence of Private Property Rights
• Income Inequality
• Volatile Prices

Question 4

what are public goods ?

Answer 4

Goods that have the characteristics of non-excludability and non-rivalry. firms cannot charge people for using them.

e.g. street lights, light house, national parks

Question 5

what are private goods ?

Answer 5

goods that are excludable and exhibit rivalry .

If you eat a biscuit you stop anyone else from eating that particular biscuit.
e.g. bread university education

Question 6

what are merit goods ?

Answer 6

are under consumed goods that have private benefits. e.g. exercise , education , veg .

Question 7

what are de-merit goods

Answer 7

over consumed and harmful goods
e.g. drugs, cigarettes

people are usually unaware of this or just dont care

Question 8

what are the two reasons why de-merit goods are over consumed ?

Answer 8

• imperfect information :
  people may not have enough information on how a class A drug might affect their health
• negative externalities:
  Producers and consumers won’t consider the wider disadvantages that cigarettes can cause for society, such as health
  related issues

Question 9

what are negative externalities in production ?

Answer 9

• are the costs to third parties as a result of actions of producers.
  example:

Local residents inhaling toxic fumes of chemical factories, this will increase their chances of lung cancer. in the free market producers only consider their privet costs and dont consider local costs

Question 10

what are negative externalities in consumption ?

Answer 10

are the costs to third parties as a result of actions of consumers

example:
consumers smoking may affect the residents around them leading to lung problems. In a free market, individual consumers only consider their private benefits they ignore the social costs

Question 11

what are positive externalities in production ?

Answer 11

benefits to third parties as a result of the actions of producers.

example:
: lower costs to third party producers who poach highly trained and skilled workers from companies who have paid for such training and skills to be developed.

Question 12

what are positive externalities in consumption ?

Answer 12

benefits to third parties as a result of the actions of a consumer

example:
as an individual is vaccinated there are lower costs to third parties as there is less risk of them getting sick.