Market Failure Flashcards
(11 cards)
What is market failure?
When the free market leads to an inefficient allocation of resources.
What are the types of market failure?
Externalities, Public Goods, Information Gaps.
What are negative externalities?
Harmful effects on third parties (e.g. pollution).
What are positive externalities?
Benefits to third parties (e.g. education).
What does MSC > MPC indicate?
Negative production externalities.
What does MSB > MPB indicate?
Positive consumption externalities.
What are public goods?
Non-excludable and non-rival.
What is an example of a public good?
Street lighting, national defence.
What is the free rider problem?
People consume public goods without paying.
What are information gaps?
Buyers or sellers lack full information.
What is an example of an information gap?
Second-hand cars (sellers know more than buyers).
