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TYPES OF MARKET FAILURE (Public Goods (Non-excludable: A good is said to…
TYPES OF MARKET FAILURE
Public Goods
Non-excludable: A good is said to be non-excludable, if it is impossible to stop other people consuming it once it has been provided. (If one person builds a flood barrier, the other people in this are will gain benefit - free-rider problem.)
Non-rivalrous: A good is said to be non-rivalrous, when one person consuming it does not prevent another person from consuming it as well. (If one person is protected by a flood barrier, it does not stop another person from being protected by it as well.)
REDUCING THIS MARKET FAILURE BY THE GOVERNMENT - they either provide public goods by themselves (by using the tax money) or they subsidise private firms.
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The use of fossil fuels
Heavy global demand for fuels. Their massive use cause climate change and there are massive external costs associated with these changes.
Fossil fuels are over-produced and over-consumed and represent a significant market failure on a global level.
Imperfect information
One party in economic transaction has access to more information or better information that the other party. The market will fail to reach the efficiency. (asymmetric information)
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