Market Failure Econ 3 topic content Alevel Economics

1. Econ 3
Market Failure
Topic Content

2. Market Failure
Market Failure
• Usually occurs when markets run poorly or not at all in
the case of missing markets.
• It often reduces consumer welfare and over or under
produces good and/or over or under consumes good.
Definition

3. Public and Private Goods
1. Excludability
2. Rivalry
3. Rejectability

4. Quasi-Public Goods
• Quasi-public goods have characteristics of
both private and public goods, including
partial excludability, partial rivalry and partial
rejectability

5. Externalities
Social Benefit
Maximisation
Private Benefit
Maximisation

6. Allocative Inefficiency
• Stems from negative externalities
• MSC>MPC
• If P=MPC and P=MSP then the market is efficient
• If P<MSC then allocative inefficiency excists and the
market fails.
• It has failed to take into account the true cost of the
product as private firms only take into account
private costs from their goods consumption

7. Merit and Demerit Goods
• Merit goods are where the social benefits of
consumption exceed the private benefits
• Demerit goods are where the social costs of
consumption exceed the private costs.