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Microeconomics
Quick questions on Market failure and government intervention - TCE Economics (Tasmania)
4short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are externalities?Show answer
An externality is a cost or benefit that falls on a third party who is not part of the transaction.
What are public goods?Show answer
Public goods are non-excludable (you cannot stop non-payers using them) and non-rival (one person's use does not reduce another's). Examples include national defence and street lighting. Because of the free-rider problem, private firms cannot profitably supply them, so the market provides too little or none. Government usually provides public goods directly, funded by taxation.
What are common access resources?Show answer
Common access resources, such as fish stocks or clean air, are rival but non-excludable. Without rules they tend to be over-used, an outcome often called the tragedy of the commons. Australian examples include managed fisheries, where the government sets catch quotas to prevent depletion.
What are government responses?Show answer
Governments have several tools, each with strengths and weaknesses.
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