YIJC 2024 H1 Market Failure Booklet Student_(Final)

©YIJC ECONOMICS 2024 YISHUN INNOVA JUNIOR COLLEGE 2024 JC1 H1 ECONOMICS Lecture Notes Topic 3: Market Failure and Government Intervention

Contents SUGGESTED READINGS ................................ ................................ ................................ ......... 2 LEARNING OBJECTIVES ................................ ................................ ................................ ......... 2 TOPIC CONCEPT MAP ................................ ................................ ................................ ............. 0 1 INTRODUCTION ................................ ................................ ................................ ................ 4 2 PRIVATE & SOCIAL OPTIMUM OUTPUT ................................ ................................ .......... 5 2.1 Private Optimum Output (Qp) ................................ ................................ ....................... 5 3 SOURCES OF MARKET FAILURE................................ ................................ ..................... 8 3.1 Non-Provision of Public Goods ................................ ................................ .................... 8 3.1.2 Policy Intervention for Non-Provision of Public Goods ................................ .............11 3.1.3 Practice Question on Policy Intervention (Public Goods) ................................ ...........14 3.2 Presence of Externalities ................................ ................................ ............................15 3.2.1 Positive Externalities ................................ ................................ ............................... 15 3.2.1.1 Positive Externalities in Consumption ................................ ................................ ........16 3.2.1.2 Positive Externalities in Production ................................ ................................ ............17 3.2.1.3 Practice Questions on Positive Externalities (Causes & Consequences)................19 3.2.1.5 Practice Questions on Policy Intervention (Positive Externality) ...........................26 3.2.2 Negative Externalities ................................ ................................ .............................. 28 3.2.2.1 Negative Externalities in Consumption ................................ ................................ .......28 3.2.2.2 Negative Externalities in Production ................................ ................................ ..........30 3.2.2.3. Practice Questions on Negative Externalities (Causes & Consequences) .............32 ................................ ................................ ................................ ................................ ..............32 3.2.2.5 Practice Questions on Policy Intervention (Negative Externalities) .......................41 4 INFORMATION FAILURE / IMPERFECT INFORMATION ................................ .................42 4.1 Under-estimation of Private Benefits ......................