Unit 2 Lesson 2: Market Failure And Externalities

Question 1

What is market failure? Describe it.

Answer 1

Markets often fail to allocate resources efficiently even when there is competition
The pursuit of profits/gains will result in some unfortunate side effects in the form
of environmental damage and neglect of social problems such as pollution,
poverty, congestion in cities, etc

Question 2

What is a negative externality?

Answer 2

A negative effect with the use of resources
Can happen as part of the production process or it can happen as a result of
consumers using the product
Examples include car manufacturing and use, cigarette smoking and vaping.

Question 3

What is a positive externality? Provide examples.

Answer 3

A positive effect with the use of resources
Can happen as part of the production process or it can happen as a result of
consumers using the product
Examples include fire detectors used to keep people safe, demolition of a building
and the materials being recycled to use as construction materials