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Market failure
When the price mechanism leads to a misallocation of resources.
When the free market, left alone, fails to deliver an efficient allocation of resources. The result is a loss of economic and social welfare.
The 4 types of market failure are…
Public goods.
Positive externalities, positive externality.
Negative externalities, negative externality.
Information gaps.
What are the functions of price
Signalling function
Incentive function
Rationing effect
Why can markets fail
Lack of competition in a market.
Negative externalities
Positive externalities
Information failure
Missing markets / Public goods
Immobility of factors of production
Equity (fairness) issues.
Note 
Flashcard (54)