Market Failure Flashcards
1
Q
Market failure
A
The free market does not lead to optimal allocation of resources
Divergence between MSB and MSC
2
Q
Complete market failure
A
Where no market is provided
3
Q
Partial market failure
A
Where there is a market but it does not allocate resources in a way that maximises social welfare
4
Q
Misallocation can lead to two things
A
Over consumption/production
Under consumption/production
5
Q
Where market failure may exist
A
Public goods
Externalities
Information asymmetries
6
Q
Example of a public good
A
Light house
7
Q
Problem of public goods
A
Free rider situation
People enjoying the benefit of a public good but do not pay for it
Can lead to missing market where there is a need for a product but market mechanism doesn’t provide it
