University:
Lancaster University
Course:
ECON100 | Principle of Economics
Academic year:

2024
Views:

171

Pages:

2
Author:

Chloe T.

Types of market failure in economy Externalities: It can be positive or negative for a third part (external to the transaction), resulting in an impact due to either consumption or production of goods and/or services. ● Positive Externalities– A positive externality is a benefit or welfare gained by consumers, which does not add to the cost of production. Even though public education may only be a concern of students and schools, in the long run an educated population can provide benefits to society as a whole. ● A negative externality:It is a cost that affects a third party who did not agree to the activity generating the cost. For instance, second-hand smoke can have GERD-inducing troubles on society without anyone having picked up a cig in the room. Affecting the Surroundings: As concerns of Natural Environment as well as sustainability. Missing Public Goods: Public goods are goods with zero production costs whatsoever that can be consumed by all consumers. Illustration of a public good: The costs to operate and maintain a lighthouse are constant regardless of whether one ship or one hundred ships make use of its light. Since lighthouses are a public good, the for-profit market generally cannot provide such services since there is no way to restrict access when we find ourselves in need of assistance from another person or their property (like the lighthouse). The problem of someone benefiting from resources such as goods and services that they do not pay for is called the free rider problem. Underproduction of merit goods: A good that is under consumed (relative to what would be socially optimal) given its benefits, usually due to positive externalities. If we consider cases, education, health care and leisure centers will be the examples of merit goods. Demerit good overprovision: A demerit good is a private good that society believes is overconsumed, often due to the presence of negative externalities. For example cigarettes, alcohol, and prostitution are demerit goods. Monopoly Power Abuse: imperfect markets limit output in order to get the most out of profit. When a market fails, the government usually intervenes based on why it failed.