2 - Market Failure and Externalities

Types of Market failure

1. imperfect goods

2. public goods

3. externalities

4. incomplete property rights

5. info imperfection

Imperfect competition

The market is not perfectly competitive so businesses have some control over market prices and choices

Public goods

Goods enjoyed in common and include non-excludability and non-rivalry goods. It is often subject to free-riding (taking advantage without contributing to it)

Non-excludability

You cant stop someone from using this good even if they didnt pay for it (everyone has granted access)

Non-rivalry

One person using the good doesnt reduce how much others can use it

Externality

The side effects of an activity that affects those not directly involved and isnt reflected in the market price (priced or unpriced)

Imperfect information

Market failure occurs when there is asymmetrical information where the sellers knows more information (intentionally or unintentionally) than the buyer