Markets are one way of determining what an economy produces, how it produces, and how the products are allocated. Advocates of free markets claim that this approach results in socially optimal outcomes, yet it is commonly accepted that market failure leads to sub-optimal outcomes.
Select ONE of the drivers of market failure listed below:
Positive externalities
Asymmetric information
Public goods
Write 600 words (+/- 10%) to address the following points:
Describe what is meant by the chosen term, give an example, and comment on how prevalent this type of market failure is in the economy.
Describe what is meant by “socially optimal outcomes” according to microeconomic theory
Discuss how and why, when this type of market failure exists, the market fails to reach the socially optimal outcome
Use a supply and demand chart to show 1) the market outcome, 2) the socially optimal outcome, and 3) how they differ in terms of quantities and prices when this type of market failure exists
Discuss what government interventions can be applied to steer the market towards socially preferable outcomes
Submission
All papers will be checked for plagiarism using Turnitin, which also detects the use of AI such as ChatGPT. To avoid the consequences of academic misconduct, ensure that your submission is written in your own words and that all of the sources you use are appropriately referenced according to university guidelines (using in-text citations and a bibliography: you can insert the bibliography as an image, so it is excluded from the word count). APA referencing format is preferred, but all mainstream referencing styles are accepted.
