1
Q
Market failure
A
Market failure occurs whenever a market leads to a misallocation of resources.
2
Q
Government failure
A
an intervention that results in an inefficient use of scarce resources, often as a result of attempting to correct a market failure.
3
Q
complete market failure analysis
A
- a public good is non excludable, which means that nobody can be prevented from benefiting from it
- as those who have not paid can still benefit, consumers have an incentive to avoid paying to hope for a ‘free ride’
- this means that firms are unable to generate enough revenue to make the production of the good profitable and the incentive function of prices breaks down
- without a seller of a good there is a missing market and the market fails completely
4
Q
what causes government failure
A
-unintended consequences
-information failure
- distorted price signals
- high administrative costs
- conflicting objectives
5
Q
regulations that don’t affect costs
A
-age
-outright ban
-banning advertising
-limits on production
