Theme 1: Market Failure

Question 1

Types of market failure

Answer 1

-externalities
-under provision of public goods
-information

Question 2

Externalities types

Answer 2

-negative production externalities
-positive consumption externalities

Question 3

Goverment intervention

Answer 3

-indirect taxes and subsidies
-tradable pollution permits
-provision of the good
-provision of information
-regulation

Question 4

Public goods

Answer 4

-there are non -rivalry
-they are also non excludable
-

Question 5

Free rider problem

Answer 5

-cannot charge an individual a price for the provision of a non excludable good
-private sector will not provide public goods because cannot be sure of making a profit
-market fails and are provided by government

Question 6

Information gaps

Answer 6

-symmetric information
-asymmetric information
-most advertising increases in technology
-information gaps lead to market failure as there is a misallocation of resources