Market failure
- Created by: jamies131
- Created on: 18-09-18 12:09
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- Types of market failure
- Positive externalities
- Government may place a subsidy on these goods.
- Negative Externalities
- Definition: Occurs when there is an inefficient allocation of resources in a free market.
- Merit goods: People underestimate the benefits of a good E.g. Education
- Demerit goods: People underestimate the costs of a good E.g. Smoking
- taxes on these goods might be imposed as a result
- Laws may be introduced to regulate demerit goods E.g. Ban on cigarette advertisement
- Public goods: Goods which are non-rival and non-excludable E.g. Police and National defence
- Monopoly: When a firm dominates the share of a market and therefore set higher prices
- Inequality: Unfair distribution of resources in a free market
- Factor immobility: E.g. Occupational or Geographical
- Agriculture: Often subject to market failure due to volatile prices and externalities
- Information failure: when there is a lack of information available in order to make an informed choice
- Principle agent problem: Where there are different individuals working with different objectives and have different knowledge of information about a particular task
- Positive externalities
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