analyse the difference between complete market failure (missing markets) and partial market failure

Question 1

Market Failure

Answer 1

• an inefficient distribution of g/s in the free market
• misallocation of resources efficiently
• often occurs when an assumption about a market is violated

Question 2

Types of Market Failures

Answer 2

• Positive/Negative Externalities
• public/private/common goods
• asymmetric information
• factor immobility

Question 3

Complete Failure

Answer 3

• when scarce resources are unable to be allocated to the satisfaction of a need/want –. insufficient incentives to encourage profit-seeking firms to enter a market
• if no-one is prepared to pay –> no revenue is derived –> no profit earned –> no firm would enter the market

Question 4

Partial Failure

Answer 4

• some of the necessary condition for market formation are met –> markets form but fail to develop and supply adequate quantities of a g/s –> when common goods are under-supplied
• when free markets over-supply a g/s –> producers don’t understand full costs of production to society/consumers don’t realise full costs of consumption to themselves –> externalities
• break-down in self-regulation –> financial crisis

Question 5

Difference between two

Answer 5

Complete - a missing market as there is no supply of products
Partial - a market is formed; however, the market does not supply an adequate quantity of products or at the price consumers pay for it