about market failure.... (1 Viewer)

[jk]

in my cssa trial there was a question "why does market failure occur?"

and i answered "price mechanism in market economy only counts private benefit and cost while it fails to take into account social benefit and cost"

and i ended up with 0 mark :mad1:

can any1 point out what is wrong wit my answer? and any suggestion or point to improve?

thanx a lot

 

[ae]

Hmmmm, "price mechanism in market economy only counts private benefit and cost while it fails to take into account social benefit and cost" is "soft-of" externalities, which is one of the reason of market failure. But I think your teacher did not give you mark cause you didnt define "externalities" well enough.

market failture is caused when a market does not allocate resources efficiently, abuse of market power (monopoly), public goods.

 

[AGB]

i got full marks for that question...my answer was:

market failure occurs because the price mechanism fails to take into account social costs of production. the price mechanism looks solely at the marginal private cost, and ignores the cost to the environment due to the fact that there are no property rights attached to the environment, thus meaning that it is non excludable, non transferable, and non rival. This creates an element of free riding, and abuse of environment resources

 

[jk]

ok thank u guys a lot

 

[coroneos]

Originally posted by AGB
i got full marks for that question...my answer was:

market failure occurs because the price mechanism fails to take into account social costs of production. the price mechanism looks solely at the marginal private cost, and ignores the cost to the environment due to the fact that there are no property rights attached to the environment, thus meaning that it is non excludable, non transferable, and non rival. This creates an element of free riding, and abuse of environment resources

nicely put.

 

[Newbie]

i dont think you should have gotten a zero
1 outa 3 at least