Market Failure

Grace Frances
Mind Map by Grace Frances, updated more than 1 year ago
Grace Frances
Created by Grace Frances over 6 years ago
136
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Resource summary

Market Failure
  1. Externalities
    1. Merit Goods
      1. In a Free market system, they tend to be Underconsumed/underproduced
        1. How to encourage the consumption/production of merit goods?
          1. Subsidise the merit goods
            1. Tax incentive
              1. Public Campaign
              2. e.g.
                1. vaccines
                  1. medicine
                  2. External benefits when they are consumed/produced
                  3. Demerit Goods
                    1. They tend to be overconsumed/overproduced
                      1. How to discourage the consumption/production of demerit goods?
                        1. Impose indirect taxes on those goods
                          1. Prohibition and laws
                          2. e.g.
                            1. alcohol
                              1. external costs
                              2. External costs when they are consumed/produced
                            2. Public Goods
                              1. No one is willing to provide public goods in a market economy due to its non-rivalry/excludable nature.
                              2. Failure in the economy in the allocation of resources
                                1. Information Failures
                                  1. Moral Hazard
                                    1. When a customer is misinformed from a more informed supplier so the consumers can the wrong choices - misallocation of resources
                                      1. Can be helped by placing regulations
                                    2. Adverse selection
                                      1. Suppliers/producers are misinformed and makes the wrong choice - misallocation of resources
                                    3. Imperfect Competition
                                      1. Monopolies might occur and would set the price . Customers would suffer from this high price
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