Market Failure MCQ 1

Market Failure

• Market failure occurs when there is inefficiency in the allocation of goods and services in a free market.
• It can happen when firms in some markets are left to operate with little or no regulation.

Tobacco Industry Example

• The demand for tobacco products would be higher if the industry was free to operate without restrictions.
• The tobacco industry is an example of market failure due to negative consequences of unregulated operations.

Overcoming Market Failure

Method 1: Regulation of Markets

• There are four regulatory bodies in Ireland that oversee markets: Commission for Regulation of Utilities, Central Bank of Ireland, Competition and Consumer Protection Commission, and Environmental Protection Agency.

Method 2: Market-Based Solutions

• Taxation can be used to reduce pollution.
• Grants or subsidies can be used to reduce pollution.

Method 3: Regulation combined with Market-Based Solutions

Tobacco Industry

• Regulation: Selling tobacco to under 18s is illegal.
• Market-Based Solution: High excise duty on tobacco products.

Reducing Pollution

• Regulation: Plans are in place to ban the sale of petrol and diesel vehicles by 2030.
• Market-Based Solution: Grants are available for electric vehicles.

Public Goods

• Examples of public goods include public footpaths and street lighting
• Two key characteristics of public goods: non-excludable and non-rivalry

Non-Excludable

• Consumption of a public good cannot be restricted to certain individuals
• Example: once a footpath is provided, it is not possible to limit an individual's use of it

Non-Rivalry

• One individual's use of a public good does not reduce another individual's ability to use it
• Example: one person using a footpath does not take away from another person's use of the same footpath

Market Failure

• Public goods are not provided by the market because there is no way to make people pay for them
• Individuals may not pay for public goods because they can still benefit from them without contributing financially

Government Intervention

• The government uses taxation revenue to provide public goods and services
• Government provision of public goods helps to correct market failure and ensure their availability to all individuals

Learn about market failure and its consequences in various industries, such as tobacco, and how it leads to inefficiency in the allocation of goods and services.