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“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