Market Failure Definition
Market failure occurs when the market mechanism has failed to provide an efficient allocation of resources. Clear? Probably not!
So what do we really mean by market failure? Remember those nice neat market diagrams with a supply curve and demand curve in perfect equilibrium? Any set of circumstances which prevent the market from achieving that equilibrium have experienced some type of market failure.
In A Level economics we often present markets as either 'working or failing'. A more accurate way to look at market failure would be in a continuum. All markets are failing and your job as an A Level economist is to consider the degree to which inefficiencies are occurring in any given market.
There are many individual types of market failure, the following list are the key types of market failure needed for A Level economics.
Market failure occurs when the market mechanism has failed to provide an efficient allocation of resources. Clear? Probably not!
So what do we really mean by market failure? Remember those nice neat market diagrams with a supply curve and demand curve in perfect equilibrium? Any set of circumstances which prevent the market from achieving that equilibrium have experienced some type of market failure.
In A Level economics we often present markets as either 'working or failing'. A more accurate way to look at market failure would be in a continuum. All markets are failing and your job as an A Level economist is to consider the degree to which inefficiencies are occurring in any given market.
There are many individual types of market failure, the following list are the key types of market failure needed for A Level economics.
- Positive & negative externalities
- Monopoly power
- Inequalities
- Public goods
- Information gaps
- Merit & demerit goods
- Principal-agent problem
- Moral hazard
- Factor immobility
