The meaning of market failure Positive and negative exter
Market failure: occurs whenever a market leads to a misallocation of resources
Complete market failure: occurs when market exists, a missing market Externalities: spill over effects arising
appropriate compensation is made
Partial market failure: occurs where a market does exist but fails to provide the
optimal quantity or the price is wrong NEG externalities caus
-
cost > private cost
&
Deadweight loss: ma
*
Reasons for market failure:
↑
output supplied is h
-
Externalities- than the social opti
Overconsumption-
-
Underconsumption-
D
"
Information gaps-
Missing markets-
Merit and demerit goods
Merit goods: goods that contain Examples:
certain positive consumption • healthcare
externalities which people usually • Museums
underestimate the benefit of • Education Market
consumption and are often under Imperfe
consumed
Market failure
• makin
• Don’t
Demerit goods: goods that Examples: • Not m
contain negative consumption • alcohol • Not a
externalises, which people • Cigarettes Asymme
often fail to understand the • Gambling • wher
danger of over consuming • Failur
Government intervention
State provision
• redistributes income + wealth
Public goods, private goods and quasi-public goods • Increase consumption
• No profit incentive
Market failure: occurs whenever a market leads to a misallocation of resources
Complete market failure: occurs when market exists, a missing market Externalities: spill over effects arising
appropriate compensation is made
Partial market failure: occurs where a market does exist but fails to provide the
optimal quantity or the price is wrong NEG externalities caus
-
cost > private cost
&
Deadweight loss: ma
*
Reasons for market failure:
↑
output supplied is h
-
Externalities- than the social opti
Overconsumption-
-
Underconsumption-
D
"
Information gaps-
Missing markets-
Merit and demerit goods
Merit goods: goods that contain Examples:
certain positive consumption • healthcare
externalities which people usually • Museums
underestimate the benefit of • Education Market
consumption and are often under Imperfe
consumed
Market failure
• makin
• Don’t
Demerit goods: goods that Examples: • Not m
contain negative consumption • alcohol • Not a
externalises, which people • Cigarettes Asymme
often fail to understand the • Gambling • wher
danger of over consuming • Failur
Government intervention
State provision
• redistributes income + wealth
Public goods, private goods and quasi-public goods • Increase consumption
• No profit incentive
