Theme 1.3.1 Types of market failure (unit 16)

Question 1

What is ‘partial market failure’?

Answer 1

It is the overproduction or underproduction of goods.

Question 2

What is a missing market?

Answer 2

A market where a market completely fails to supply any goods.

Question 3

What is complete market failure?

Answer 3

It is when a market fails to supply any of a good which is demanded which will lead to a missing market.

Question 4

What is market failure?

Answer 4

It is where resources are inefficiency allocated due to imperfections in the working of a market mechanism.

Question 5

What are some of the causes of market failure?

Answer 5

• Externalities, prices and profits can not always be good signals as they don’t represent the negative private and social cost of producing a product which will eventually result in huge market failure.
• Under provision of public goods, some don’t pay for the provision of them and rely on others paying for them but this just leads to there not being money to fund all of the required public goods.
• Information gaps, sometimes one of the parties in a transaction wont have perfect information resulting in them not acting in the mist inefficient way possible. Also there can be asymmetric information.