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3 Cards in this Set
- Front
- Back
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When does market failure happen? |
When the price mechanism fails to allocate scarce resources efficiently or when the operation of market forces leads to a net social welfare loss |
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What's the difference between complete and partial market failure? |
Complete occurs when the market simply does not supply products at all - we see 'missing markets'. Partial occurs when the market does actually function but it produces either the wrong quantity of a product or at the wrong price. |
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Name three reasons a market might fail? |
Negative externalities causing the social cost to exceed private cost Positive externalities causing the social benefit of consumption to exceed the private one. Imperfect information may mean that merit goods are under produced whilst demerit good are over produced or over consumed. Market dominance by monopolies can lead to under production and higher prices, causing consumer welfare to be damaged. |
