Types Of Market Failure Flashcards
1
Q
What is market failure
A
When the free market fails to allocate scarce resources at the socially optimum level of output
2
Q
Why are negative/positve consumption and production externalities present
A
Self interest - won’t be accounted for in the free market
Ignore impacts on third parties
3
Q
Why are demerit and merit goods over or under consumed
A
Information failure
4
Q
What is the issue with public goods
A
Free rider problem
Firms are price motivated so no supply
5
Q
Why is inequality a market failure
A
Inequity
6
Q
How does monopoly power lead to market failure
A
One dominant seller
High barriers to entry
Consumers pay higher prices
