Question

Explain these types of Market Failures in your own words and give real life examples for each

Externalities ,public goods and asymmetric information

Answer 1

Market failure This happens when resources are ineffectively allocated on a free market. Market failure can occur for a variety of reasons, such as monopoly (higher prices and lower output), negative externalities (over-consumed) and public goods (normally not available in a free market)

1. Positive externalities –goods / services that favor a third party, such as less traffic caused by cycling 2. Negative externalities –goods / services that impose costs on a third party, such as passive smoking cancer 3. Merit products–People underestimate the value of goods, e.g. Demerit goods education–People underestimate goods prices, e.g. cigarettes 4. Public services–non-rivaland non-exclusive products–for example, police, national defense.
5. Monopoly power–when the market is dominated by a corporation and higher prices can be set. 6. Immobility factor–For example, geographical / occupational immobility

Behavioral economics explores that individuals frequently behave in an irrational way – contrary to traditional economic models ' expectations. Such forms of ' irrational behavior ' can lead to a kind of market failure where bad choices are made by people.