SECTION 1MANAGING THE

ECONOMY

Market Failure

The economy at work

GCSE ECONOMICS: UNIT 12

SECTION 1MANAGING THE

ECONOMYLesson Objectives

• Understand what is meant by market failure

• Produce a short 5 minute lesson on one of the types of market failure

SECTION 1MANAGING THE

ECONOMYMarket Failure

• In today’s lesson we will be looking at Market Failure

• Before understanding how a market fails it’s important you know what a market is!

• Write down your own definition of a market

SECTION 1MANAGING THE

ECONOMYWhat is a market?

• A market is a place where buyers and sellers come together to conduct a transaction together

• Markets left to operate freely have a good chance of operating efficiently

• By operating efficiently, business costs can be kept low in order to improve profits

• In this way, the market ensures that the resources are allocated efficiently

SECTION 1MANAGING THE

ECONOMYWhat is market failure?

• Market failure occurs when markets fail to allocate resources efficiently

• This means the prices of goods and the quantities produced are not at the level that ensures that economic welfare is kept as high as possible

• For example, if a market fails, some goods may be under-produced or not even produced at all

SECTION 1MANAGING THE

ECONOMYTypes of market failure

• There are a number of different types of market failure, such as:– Merit goods/De-merit goods– Public goods– Imperfect competition e.g. monopoly– Positive externalities/ Negative externalities– Unequal distribution or income/wealth– Immobility of factors of production (e.g. immobility

of labour)

SECTION 1MANAGING THE

ECONOMYTypes of market failure: Over to you

• You have 15 minutes to research your chosen type of market failure

• Produce a handout which includes the following;– a clear definition of your type of market failure– an explanation as to why it occurs– examples of your type of market failure in the real

world• You will present your findings to the other groups

SECTION 1MANAGING THE

ECONOMY

Match the keyword to the expression which fits best

Market Failure

Non-rival

Non-excludable

Free-rider

Too much or too little, but never just enough

There is enough for everyone

You can’t stop me

You buy it….no you buy it!

SECTION 1MANAGING THE

ECONOMYWhat do you see?

Under-consumed!

SECTION 1MANAGING THE

ECONOMYWhat do you see?

Over-consumed!

SECTION 1MANAGING THE

ECONOMYWhat do you see?

Healthcare would beunder-consumed if

the government didn’t step in!

SECTION 1MANAGING THE

ECONOMYWhat do you see?

Over-consumed!