Author: Windows User

Market Failure Type

Negative Externalities

Positive Externalities

Imperfect Information: Merit/Demerit Goods

Cause Market Failure Because: Too Much Produced in Free Market

Cause Market Failure Because: Too Little Produced in Free Market

Cause Market Failure Because: Not enough or too much consumed/produced.

Government Intervention:

Government Intervention:

Regulation: setting limits on the amount a firm can pollute. Inspect factories to make sure limits abided by. If firm pollutes more than its’ limit it can be fined a large amount of money.

Pollution Permits: provide or sell to firms a permit to pollute a given amount. If permit is exceeded firms must buy another one from another firm or the government. Aim is for companies to become more efficient and greener, whilst creating a market for pollution permits, which the UK economy benefits from.

Financial Intervention: Tax firms or individuals producing negative externalities. The government could intervene to impose a tax equal to MEC. This would shift the MPC curve to form MPC=MSC.

Financial Intervention: Subsidise producers of positive externalities. This would shift the MPB curve to join the MSB curve.

Compulsory Labelling: on cigarette packets, warning of health problems associated with product.
Nutritional Information: on food to counter risks of obesity.
Anti Speed/Drink Advertising: on television to discourage consumption and raise awareness.
Advertising Health Services Imposing legal sanctions: on truanting students’ parents.

Market Failure Type

Public Goods

Immobility of Factors of Production

Monopolies

Inequalities of Income and Wealth

Causes Market Failure Because: If left to the free market these goods would not be produced at all (complete market failure). Quasi public goods would be under-produced.

Examples:
Street Lighting, 999 Services, Light Houses

Government Intervention:

Public goods financed by government: The government will decide upon the appropriate level of spending on public goods and finance through taxation.

Causes Market Failure Because: Resources are distributed inefficiently

Government Intervention:

Re-Training: re-train those who are structurally unemployed.
Provide Affordable housing: for key workers, which will increase the mobility of labour for essential workers in cities where property can be expensive.

Causes Market Failure Because: compared to the competitive market, output is restricted and price increased, resulting in an under-consumption of the good or service.

Government Intervention:

Breaking Up of Monopolies: many economists believe that resources are most efficiently allocated when the market is competitive. Monopoly busting is therefore a solution.
Regulating Markets: government or agencies like OFCOM regulating markets to ensure there is no abuse of monopoly power or price fixing.
Taxing Monopolies: government taxes monopolies’ profit to create an incentive to reduce prices and profits.
Force Selling Off: force private firms which are too large to sell off parts of its business.
Nationalisation/Privatisation

Causes Market Failure Because: there is a lack of fairness or equity in the distribution of income and wealth in the free market.

Government Intervention:

Progressive Taxation: Robin Hood Effect, taxing the richest hardest and using the tax revenue to build hospitals, schools and redistribute incomes and wealth.
Subsidise Housing and Mortgages for first time buyers.
Welfare Payments
Child Support Payments