Market failure and government intervention
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Market failure and Government intervention
Answers
Rifdhi Azad – SQA 03
QUESTIONS
1. Explain what is meant by the term ”market failure”. In your answer you must refer to the role of government in relation to each of the following
a. Public Goods
b. Merit Goods
c. Externalities
d. Imperfect competition
2. Select one current government policy on completion and
a. Explain the policy selected
b. Identify and describe the instruments used to achieve your chosen policy
c. Evaluate the success or failure of your chosen policy in relation to its use within the UK
Contents
1. Market failure and government intervention 2
Public goods 2
Merit goods 2
Externalities 3
Positive externalities 3
Negative externalities 3
1. Market failure and government intervention
Market failure is where a market fails to develop, or when they fail to allocate resources efficiently. Economics Online Ltd.
Government interferes to solve the below failures,
Public goods
Free market fails to provide public goods without a price tag to it. There is no proper way to include a price to public good.
Definition: A public good (or service) may be consumed without reducing the amount available for others, and cannot be withheld from those who do not pay for it. Public goods (and services) include economic statistics and other information, law enforcement, national defense, parks, and other things for the use and benefit of all.
No market exists for such goods, and they are provided to everyone by governments. Government interferes and produces public goods and financed through taxation of individuals or businesses.
Merit goods
Merit goods are those goods and services supplied by both private and public market. There is an opportunity cost providing theses goods to the consumers.
Consumption of these goods will generate a positive externality such as Education, Health care. (Where the social benefit from consumption exceeds the private benefit)
Free
Market failure and Government intervention
Answers
Rifdhi Azad – SQA 03
QUESTIONS
1. Explain what is meant by the term ”market failure”. In your answer you must refer to the role of government in relation to each of the following
a. Public Goods
b. Merit Goods
c. Externalities
d. Imperfect competition
2. Select one current government policy on completion and
a. Explain the policy selected
b. Identify and describe the instruments used to achieve your chosen policy
c. Evaluate the success or failure of your chosen policy in relation to its use within the UK
Contents
1. Market failure and government intervention 2
Public goods 2
Merit goods 2
Externalities 3
Positive externalities 3
Negative externalities 3
1. Market failure and government intervention
Market failure is where a market fails to develop, or when they fail to allocate resources efficiently. Economics Online Ltd.
Government interferes to solve the below failures,
Public goods
Free market fails to provide public goods without a price tag to it. There is no proper way to include a price to public good.
Definition: A public good (or service) may be consumed without reducing the amount available for others, and cannot be withheld from those who do not pay for it. Public goods (and services) include economic statistics and other information, law enforcement, national defense, parks, and other things for the use and benefit of all.
No market exists for such goods, and they are provided to everyone by governments. Government interferes and produces public goods and financed through taxation of individuals or businesses.
Merit goods
Merit goods are those goods and services supplied by both private and public market. There is an opportunity cost providing theses goods to the consumers.
Consumption of these goods will generate a positive externality such as Education, Health care. (Where the social benefit from consumption exceeds the private benefit)
Free