ECO SAC - 2 MARKET FAILURE

for 100% on market failure SAC

Market Failure

Occurs when resources are not allocated efficiently, leading to outcomes that do not maximize societal well-being.

Public Goods

Goods that are non-excludable and non-rivalrous, such as street lighting.

Free Rider Problem

People benefit from public goods without paying, leading to underallocation of resources.

Externalities

When a transaction affects third parties not directly involved in production or consumption.

Positive Externalities

Benefits to society beyond the firm’s private gain, leading to underallocation of resources.

Negative Externalities

Costs imposed on society by production or consumption, leading to overallocation of resources.

Asymmetric Information

One party in a transaction has more knowledge than the other, leading to poor decision-making.

Moral Hazard

Occurs when individuals take higher risks because they don’t bear full consequences.

Common Access Goods

Resources that are non-excludable but rivalrous, such as fisheries and clean air.

Government Failure

When government intervention worsens efficiency instead of fixing market failure.

Price Floors

Minimum prices set by the government to prevent prices from being too low; can lead to surplus.

Price Ceilings

Maximum prices set by the government to prevent prices from being too high; can lead to shortages.

Subsidies

Financial support provided by the government to firms to encourage production or consumption of goods.

Carbon Tax

A tax imposed on firms to internalize social costs related to pollution.

Quotas

Limits set by the government on the amount of a resource that can be used or accessed, such as fishing limits.

Tariffs

Taxes on imports to protect domestic industries, which can lead to misallocation of resources.

Minimum Wage

A legal minimum for hourly wage that can lead to higher labor costs and potential job losses.

Advertising

Efforts to raise awareness or demand for a product or service, potentially correcting market failures.

Direct Provision

When the government funds and produces public goods to ensure their availability.