types of financial market failure

Question 1

speculation and bubbles

Answer 1

-excessive risk
-buy assets at low price and sold at higher price
-prices fall and deal leveraged
-excessively high estimates of future price increases creating bubble and overpaying
-due to high estimates, it is traded more, leading to it rising above intrinsic f=value and bursts falling (prices fall)

Question 2

negative externalities

Answer 2

whereby finanical institutions take excessive risk leading to systemic risks that can affect the entire economy

Question 3

asymmetric info

Answer 3

-lead to a moral hazar
-most likely buyers are those the seller would prefer not to sell due to imperfect
-premium based on who it believes will buy
-health consumers (premiums too high), poor health (good value)
-result is selling only to profitable consumers risking losess

Question 4

market rigging

Answer 4

-traders/bankers collude to manipulate markets and make huge profits
-heavy fines and regulation but if punishment weak, still happens