Market Failure

Market Failure

Externalities
1. Merit Goods
  1. In a Free market system, they tend to be Underconsumed/underproduced
  2. How to encourage the consumption/production of merit goods?
    1. Subsidise the merit goods
    2. Tax incentive
    3. Public Campaign
  3. e.g.
    1. vaccines
    2. medicine
  4. External benefits when they are consumed/produced
2. Demerit Goods
  1. They tend to be overconsumed/overproduced
  2. How to discourage the consumption/production of demerit goods?
    1. Impose indirect taxes on those goods
    2. Prohibition and laws
  3. e.g.
    1. alcohol
    2. external costs
  4. External costs when they are consumed/produced
Public Goods
1. No one is willing to provide public goods in a market economy due to its non-rivalry/excludable nature.
Failure in the economy in the allocation of resources
Information Failures
1. Moral Hazard
  1. When a customer is misinformed from a more informed supplier so the consumers can the wrong choices - misallocation of resources
    1. Can be helped by placing regulations
2. Adverse selection
  1. Suppliers/producers are misinformed and makes the wrong choice - misallocation of resources
Imperfect Competition
1. Monopolies might occur and would set the price . Customers would suffer from this high price

Resource summary

	Created by Grace Frances over 9 years ago