Market Failures

Market failure is said to occur whenever

private markets do not allocate resources in the most economically desirable way leading to inefficiencies

Demand-side market failures occur when

the demand and supply curves don't reflect comsumers' full willingness to pay for a good or service

Supply-side market failures occur when

the demand and supply curves don't reflect the full cost of producing a good or service

"The trains of the Transcontinental Railway Company, when shipping goods, sometimes emit sparks that start fires along the tracks and damage the property of others. If Transcontinental does not pay for the damage it causes, what has occured

Supply-side market failure

Which of the following is an example of a public good

a weather warning system

Which of the following is an example of market failure

all of these (negative externalities, positive externalities, and public goods)

"People enjoy outdoor holiday lightning displays, and would be willing to pay to see these displays, but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of

demand-side market failure

Which of the following is an example of a quasi-public good

education

The two main characteristics of a public good are

nonrivalry and nonexcludability

Because of the free-rider problem

the market demand for a public good is nonexistent or understated.