Types Of Market Failure

Question 1

What is the meaning of market failure?

Answer 1

The failure of the market system to allocate resources efficiently. It arises because the price mechanism has not been taken into account all the costs and benefits in the production or consumption of the product or service.

Question 2

What are the types of market failure?

Answer 2

-externalities
-non provision of public goods
-information gaps
-monopoly
-moral hazard
-immobility of labour
-speculation and market bubbles

Question 3

What are the reasons for market failure?

Answer 3

-for resources to be allocated efficiently it is necessary for SMC to be equal to SMB

-in practice some costs or benefits may not be included because they may not be known or may be difficult to quantify

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Question 4

What is Social marginal cost?

Answer 4

The addition to total cost of producing an extra unit of output

Question 5

What is social marginal benefit?

Answer 5

Refers to the addition to total benefits of consuming an extra unit