Market Failure
- Created by: ZaraZaman
- Created on: 20-02-15 09:32
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- Market failure
- Occurs when resources are not allocated efficiently
- Can result in a loss of economic and social welfare
- Hurts society as a whole
- Usually a result of selfish actions of firms
- Results of market failure
- Product inefficiency
- Output is not maximised
- The 'could have been' scenario
- Output is not maximised
- Allocative inefficiency
- Resources are misallocated
- This means producing goods that ARE NOT WANTED
- Resources are misallocated
- Product inefficiency
- So what causes market failure?
- Negative externalities
- EG Pollution
- Social benefits exceeding the private benefit
- EG Lack of healthcare
- More demerit goods produced than merit goods
- Imperfect information
- Monopolies
- Under production and extreme pricing
- Factor immobility
- EG Labour is immobile and cannot get to where it is needed
- Equity issues
- Uneven distribution of income
- Negative externalities
- How can market failure be corrected?
- By government intervention
- Occurs when resources are not allocated efficiently
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