Market Failure

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  • 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
      • Allocative inefficiency
        • Resources are misallocated
          • This means producing goods that ARE NOT WANTED
    • 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
    • How can market failure be corrected?
      • By government intervention

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