Theme 1.3 - Market Failure Flashcards
1
Q
What are the 3 types of market failure?
A
Externalities
Under provision of public goods
Information gaps
2
Q
How are externalities an example of market failure?
A
Price mechanism fails to account for external social costs
Market value ≠ SOP
3
Q
How are positive externalities an example of market failure?
A
Under consumption of merit goods
Overpriced merit goods
Welfare gain
External benefit
4
Q
How are negative externalities an example of market failure?
A
Overproduction of demerit goods
Overconsumption of demerit goods
Welfare loss
