8.() Explain what is meant by the term “market failure" by giving two major types of such failures. A(Market failure) is a situation where the competitive market system on its own would either (1) produce the “wTong" amount of certain goods and services as is the case where there are external costs or benefits (i.e., externalities), or (2) fail to allocate any resources to the production of certain goods and services referred to as “( public goods )". 9. ) Refer to the question 8 above and explain the reasons behind each type of failure. Where negative externalities exist, the market system without any intervention will allow some of the costs of private production or consumption to “spill over" onto third parties. There is no market incentive to absorb all of the costs of production if there is a way to get someone else to pay for them. • In such cases of negative externalities, the market cost and price of the product will be too ( low high) and thus the quantity produced too ( low , high) in terms of its true cost of production. • Negative externalities result in an (underallcation, overallocation ) of resources to the production of a product. All the costs associated with the product are not reflected in the (demand, supply) curve. The (demand, supply) curve lies to the (right, left) of the full-cost supply curve. • Thus, due to the negative externalities, the costs are ( underestimated, overestimated ); resources are ( underallocated, overallocated ) to the production of such goods. • Examples of negative externalities of production are primarily various forms of ( p Negative externalities of consumption might include such things as
8.() Explain what is meant by the term “market failure" by giving two major types of such failures. A(Market failure) is a situation where the competitive market system on its own would either (1) produce the “wTong" amount of certain goods and services as is the case where there are external costs or benefits (i.e., externalities), or (2) fail to allocate any resources to the production of certain goods and services referred to as “( public goods )". 9. ) Refer to the question 8 above and explain the reasons behind each type of failure. Where negative externalities exist, the market system without any intervention will allow some of the costs of private production or consumption to “spill over" onto third parties. There is no market incentive to absorb all of the costs of production if there is a way to get someone else to pay for them. • In such cases of negative externalities, the market cost and price of the product will be too ( low high) and thus the quantity produced too ( low , high) in terms of its true cost of production. • Negative externalities result in an (underallcation, overallocation ) of resources to the production of a product. All the costs associated with the product are not reflected in the (demand, supply) curve. The (demand, supply) curve lies to the (right, left) of the full-cost supply curve. • Thus, due to the negative externalities, the costs are ( underestimated, overestimated ); resources are ( underallocated, overallocated ) to the production of such goods. • Examples of negative externalities of production are primarily various forms of ( p Negative externalities of consumption might include such things as
Chapter1: Making Economics Decisions
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Transcribed Image Text:8. Q Explain what is meant by the term “market failure" by giving two major types of such
failures.
A (Market failure) is a situation where the competitive market system on its own would either
(1) produce the "wrong" amount of certain goods and services as is the case where there are external costs
or benefits (i.e., externalities), or (2) fail to allocate any resources to the production of certain goods and
services referred to as "( public goods )".
9. ) Refer to the question 8 above and explain the reasons behind each type of failure.
Where negative externalities exist, the market system without any intervention will allow some of the
costs of private production or consumption to "spill over" onto third parties. There is no market incentive
to absorb all of the costs of production if there is a way to get someone else to pay for them.
• In such cases of negative externalities, the market cost and price of the product will be too (low
high) and thus the quantity produced too ( low , high) in terms of its true cost of production.
Negative externalities result in an (underallcation, overallocation ) of resources to the production
of a product. All the costs associated with the product are not reflected in the (demand, supply)
curve. The (demand, supply) curve lies to the (right, left) of the full-cost supply curve.
• Thus, due to the negative externalities, the costs are (underestimated, overestimated ); resources
are ( underallocated overallocated) to the production of such goods.
Examples of negative externalities of production are primarily various forms of (p
Negative externalities of consumption might include such things as
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