5a. Market failure
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Market failure
When the price mechanism leads to a misallocation of resources.
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When the free market, left alone, fails to deliver an efficient allocation of resources. The result is a loss of economic and social welfare.
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When the free market, left alone, fails to deliver an efficient allocation of resources. The result is a loss of economic and social welfare.
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The 4 types of market failure are…
**Public goods**.
**Positive externalities, positive externality**.
**Negative externalities, negative externality**.
**Information gaps**.
**Positive externalities, positive externality**.
**Negative externalities, negative externality**.
**Information gaps**.
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What are the functions of price
**Signalling function**
**Incentive function**
**Rationing effect**
**Incentive function**
**Rationing effect**
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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.**
**Negative externalities**
**Positive externalities**
**Information failure**
**Missing markets / Public goods**
**Immobility of factors of production**
**Equity (fairness) issues.**
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