1.3.1 Types of Market Failure Flashcards
1
Q
Market failure
A
When the market causes an inefficient allocation of resources. There might be over production, under production or no production of goods & services.
2
Q
Externality
A
A cost or benefit third parties receives from an economic transaction. It is the spill over effect of the production or consumption of a good or service.
3
Q
Public goods
A
They are non-excludable and non-rivalrous. They are under provided in a free market economy because of the free rider problem.
4
Q
Information gaps
A
When some, or all, of the participants in an economic exchange do not have perfect knowledge.
