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Market Failures – Revision Summary

“Market Failure can be defined as any situation whereby the free market fails to allocate resources in a way that achieves Economic Efficiency.”
Type of Positive Negative Merit Demerit Public Monopoly Monopsony Labour
Failure
Externalities Externalities Goods Goods Goods Power Power Immobility

Example  Education.  Consumption of  Insurance.  Cigarettes.  Armed forces.  Public Utilities.  Fire fighters  North / South divide
 Healthcare. fossil fuels.  Pensions.  Fatty foods.  Street lights.  School Uniform. in UK.
 Fireworks.  Driving.  Seat Belts.  Google?  Isan and Bangkok in
 Smoking. Thailand.
Free Market  Under Consumption  Over Consumption  Under Consumption  Over Consumption  No Production or  Under Consumption  Lower wages.  Information Failure.
Leads to…
and Production. and Production. and Production. and Production. Consumption. and Production.  Lower Employment.  Higher
 Information Failure.  Information Failure.  Information Failure.  Information Failure.  Higher Prices Unemployment.
 Lower GDP.
Diagram  (No diagram)  (No diagram)  (No diagram)  (No diagram)

Possible  Maximum Price  Indirect Taxation.  Maximum Price  Indirect Taxation.  Direct Provision.  Maximum Price  Minimum Wages.  Training and
Government
Action
Controls.  Regulation. Controls.  Regulation. Controls. Education.
 Price Stabilisation.  Minimum Price  Price Stabilisation.  Minimum Price  Regulation.  Social Housing.
 Subsidies. Controls.  Subsidies. Controls.  Nationalisation.  Maximum Pricing on
 Direct Provision.  Outright Bann.  Direct Provision.  Outright Bann.  Breaking up of Housing (rent
 Regulation.  Informative  Regulation.  Informative Monopoly. controls).
 Nationalisation. Adverting.  Nationalisation. Adverting.
 Informative  Informative
Adverting. Adverting.
Possible You must evaluate your suggested government action, by explaining a possible government failure. See next table for details.
Government
Failure

ADN 2014

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