ASRJC Theme 2B Market Failure Lecture notes_2025

THEME 2: Firms’ Strategies and Market Failure Anderson Serangoon Junior College Economics Department A 1 THEME 2: FIRMS’ STRATEGIES AND MARKET FAILURE SYLLABUS CONTENT (H3)

THEME 2: Firms’ Strategies and Market Failure Anderson Serangoon Junior College Economics Department A 2 THEME 2: FIRMS’ STRATEGIES AND MARKET FAILURE CHAPTER 1: MARKET FAILURE 1. QUASI-PUBLIC GOODS A. ISSUE OF COMMON RESOURCES (THE TRAGEDY OF THE COMMONS) AND SIGNIFICANCE OF CLEARLY-DEFINED PROPERTY RIGHTS - COASE THEOREM AND TRADEABLE PERMITS B. CLUB GOODS 2. UNCERTAINTY AND ASYMMETRIC INFORMATION A. UNCERTAINTY AND ATTITUDES TO RISK B. EFFECTS OF UNCERTAINTY AND ASYMMETRIC INFORMATION ON THE DECISIONS MADE BY ECONOMIC AGENTS C. STRATEGIES AND POLICY MEASURES TO ADDRESS PROBLEMS OF RISK AND UNCERTAINTY, AND ASYMMETRIC INFORMATION Anderson Serangoon Junior College JC2 H3 Economics 2025

THEME 2: Firms’ Strategies and Market Failure Anderson Serangoon Junior College Economics Department A 3 1. Quasi-Public Goods In H2 Economics, students would have learnt the concepts of public goods, in the form of pure public goods which are both non-rivalrous and non-excludable. However, many goods thought of as public goods are actually quasi-public goods, i.e., near-public goods that only exhibit one of the distinguishing characteristics. A useful introduction of quasi-public goods and how they are related to pure public goods can be found in a paper by the Local Government Forum (2008) of New Zealand, titled "Local Government and the Provision of Public Goods". The following paragraphs and the summary table (Table 2–1) have been adapted from this paper. Table 2–1: Characteristics of goods and services Rivalrous in consumption Excludability of consumption Low Medium High Low Public Goods: Street lightings, traffic signs, parks, reserves and civil defence service Low-use roads, footpaths and cycle ways Common Resources: Wild fish in the sea, wild herbs in the forest, and fertile pastures Medium Flood control service Sports grounds High-use roads High Club Goods: Museums and galleries (during non- peak periods) and private golf clubs Public libraries, swimming pools, indoor recreation facilities and public venues Private Goods: Airports, public transport service, clean drinking water, rubbish disposal service, car park lots, cinemas and housing There are various categories of quasi-public goods that only exhibit one of the distinguishing characteristics of a public good. For example, goods depending on infrastructure of fixed capacity (such as roads) can become so congested at a certain level of use that one additional person’s consumption will affect the ability of others to make use of them. In this case, a high-use road becomes rivalrous in c