Market Mechanism, Market Failure and Government Intervention in Markets

Question 1

Market Failure

Answer 1

When there is a misallocation of resources within a market

Question 2

Types of Market Failure

Answer 2

Externalities
Under-provision of public goods
Information gaps
Monopolies

Question 3

Complete Market Failure

Answer 3

When there is a Missing Market - market does not supply the products at all

Question 4

Partial Market Failure

Answer 4

When the market produces a good but is at the wrong price of quantity

Question 5

Public Goods

Answer 5

Goods that are non-excludable and non-rival

Question 6

Non-excludable

Answer 6

Once consumed, someone else can also consume that good/service

Question 7

Non-rival

Answer 7

The benefit others get from the good doesn’t diminish if more people consume that good/service

Question 8

Free-rider Problem

Answer 8

People are benefitting from something that they have not paid for

Question 9

Private Goods

Answer 9

Goods that are excludable and rival

Question 10

Quasi-public Goods

Answer 10

Goods that have both characteristics of public and private goods

Question 11

Tragedy of the Commons

Answer 11

Individuals who have access to public resources act in own interest so can deplete the resource

Question 12

Externality

Answer 12

Indirect cost of benefit a third party receives from an economic activity

Question 13

Demerit Good

Answer 13

Good/Service that has a negative externality

Question 14

Merit Good

Answer 14

Good/Service that has a positive externality