Market Failure: The meaning of market failure

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  • Market Failure: The Meaning of Market Failure
    • Negative   Externality
      • Harmful 3rd Party effects as a result of the actions from a separate agent.
        • Example: The effects of enviro pollution
        • Example: Industrial waste
        • Example: Air pollution from Smokers
        • Example: Gambling
        • Example: Spill over costs of Obesity
    • Positive   Externality
      • 3rd party benefits that occur as a result of actions from a separate agent
        • Example: The under consumption of  Education
        • Example: Flood Defence
        • Health Care
    • Imperfect   Information
      • Information failure occurs when people have inaccurate information, incomplete, uncertain or misunderstood data so wrong decisions are made
      • Asymmetrical Failure is when information does exist, however it is not shared equally between two parties. With goods such as alcohol, companies will not share information such as this to stop a decline in demand
    • Market Dominance: Monopolies
      • Monopolies can lead to under-production and higher prices for goods / services that otherwise wouldn't be as expensive under competitive conditions
        • Free Market
    • Equity (fairness) Issues
      • Markets can cause an 'unacceptable' distribution of income and subsequent social exclusion that the government may choose to correct
    • Immobility of Factors
      • Immobility of factors of production causes unemployment and therefore productive inefficiency
        • Geographical Immobility
        • Occupational Immobility
    • Public Goods
      • The private sector in free markets being unable to supply important pure public goods and quasi-public goods  profitably to consumers
        • Quasi-goods are goods/services that posses qualities of a private and public good


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