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    Market Failure

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    The document discusses market failure and its various types. It defines market failure as inefficient resource allocation by markets. The main types of market failure mentioned are externalities, information failures, underproduction of merit goods, overproduction of demerit goods, public goods, monopoly power, and immobile resources.

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    Market Failure

    Uploaded by

    7a4374 his
    24 views2 pages
    The document discusses market failure and its various types. It defines market failure as inefficient resource allocation by markets. The main types of market failure mentioned are externalities, information failures, underproduction of merit goods, overproduction of demerit goods, public goods, monopoly power, and immobile resources.

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    14.-Market-failure

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    The document discusses market failure and its various types. It defines market failure as inefficient resource allocation by markets. The main types of market failure mentioned are externalities, information failures, underproduction of merit goods, overproduction of demerit goods, public goods, monopoly power, and immobile resources.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views2 pages

    Market Failure

    Uploaded by

    7a4374 his
    The document discusses market failure and its various types. It defines market failure as inefficient resource allocation by markets. The main types of market failure mentioned are externalities, information failures, underproduction of merit goods, overproduction of demerit goods, public goods, monopoly power, and immobile resources.

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    © All Rights Reserved
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    Knockout .Economics-No.

    1 Economics and Business Studies Tutors


    www.knockouteconomics.com
    Private class, Small Course, Online course :@Knockout.economics

    CHAPTER 14 : MARKET FAILURE


    Key terms
    1. Social benefit : benefit to the society or the sum of private benefit and external
    benefit
    2. Social cost : cost to the whole society or the sum of private cost and external cost
    3. Private benefits : benefits from consumption to consumers or benefit from
    production to producers
    4. Private cost : cost of consumption to consumers or cost of production to producers
    5. External cost : negative effects from consumption or production to the third party
    6. External benefit : positive effects from consumption or production to the third party
    7. Socially optimal output: the level of output where society's welfare is maximized. It
    is where social cost and social benefit are equal
    8. Merit goods: products which generate positive externalities and are under-
    consumed in the free market e.g. education and healthcare
    9. Demerit goods: Products which generate negative externalities and are over-
    consumed in the free market e.g. alcohol
    10. Private goods: Product which is rival and excludable.
    11. Public goods : Product which is non-rival and non-excludable. It needs government
    help to provide
    12. Monopoly : A single seller
    13. Price fixing : when two or more firms agree to sell a product at the same price

    No part of this resource may be reproduced, distributed, or transmitted in any form by any means for non-personal use
    without the prior written permission from Knockout.Economics
    Knockout .Economics-No.1 Economics and Business Studies Tutors
    www.knockouteconomics.com
    Private class, Small Course, Online course :@Knockout.economics
    1. What is Market failure?
    Market failure : when markets allocate resources ine ciently.

    2. Types of market failure


    2.1) Externality
    : Market fails to take into account all costs and bene ts.
    ↳ There is overproduction and overconsumption in some goods which generate
    external cost e.g. pollution and alcohol.
    ↳ There is underproduction and underconsumption in some goods which generate
    external bene ts e.g. research on medicine and education.
    2.2) Information failure
    : when consumers and producers do not have equal access to information. It leads to the
    wrong decision.
    2.3) Underconsumption or underproduction of merit goods
    : Products which are under consumed in the free market. And, the goods generate
    positive externalities (Positive e ect to the third party)
    2.4) Overconsumption or overproduction of demerit goods
    : Products which are over consumed in the free market. And, the goods generate negative
    externalities (negative e ect to the third party)
    2.5) Public goods
    : Product which is non-rival and non-excludable, it is under-provided in the free market.
    Non-excludable means no one can be excluded from the consumption. Non-rival means
    the consumption by one person does not reduce the consumption to the next consumer.
    2.6) Monopoly
    : A single seller has market power to restrict output to push up the price. Then
    consumers face high prices and low quantities of output in the market.
    2.7) Immobility of resources
    : Some resources are geographical and occupational immobility.

    No part of this resource may be reproduced, distributed, or transmitted in any form by any means for non-personal use
    without the prior written permission from Knockout.Economics
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