Economics

Economics Assessment

Research Task

Outcome 3

1. Market Failure

The term ‘market failure’ means not being able to provide an efficient distribution of resources to the society. The market failure exists due to the malfunction of not achieving social and economic efficiency. Government intervention occurs because markets are not putting enough effort into their work or working up to their best level, for example the market might not distribute the scarce resources as efficiently as it should for it to achieve the maximum total of social interests.

Externalities

Externalities can be described as a third party or side effects occurring due to the production and consumption of goods and services where no reimbursement is paid. Externalities are generally quite common in every area of economic activity. Externalities can cause market failure when markets are unsuccessful to achieve the social efficiency and when the price mechanism does not take into account any of the social costs and any of the social benefits of production and consumption experienced by the society however, this would not be affecting the producers or the consumers.

Public Goods

Public goods are consumed not by an individual consumer’s decision but by the whole public, which is financed by taxation. The public good is a good that is non-rival and non-excludable. When the market is unsuccessful in supplying goods and services, it can lead to government intervention. Public goods are services provided by the free market, which are available to collect for two reasons such as non-excludability, these goods cannot be limited to those who have already paid for it. The second reason is because of non-rivalry in consumption which means goods consumed by one individual would not decrease a number of goods for others. Examples of public goods include flood control systems, street lighting and national defence.

Merit Goods

Merit goods are goods or services such as education and...