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Details on Regulatory Intervention and Market Failure

Details on Regulatory Intervention and Market Failure

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Author: Justin Tapp
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This lesson provides examples of regulatory intervention and market failure.

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Notes on "Details on Regulatory Intervention and Market Failure"

Terms to Know

Externality

The effects of a good or service to a third party; can be negative or positive.

Market Failure

A situation where the free market does not create an optimal situation between those demanding a good or service and those supplying a good or service. Market failures are addressed through government intervention.

Government Failure

A situation involving government intervention that results in increased inefficiency in the allocation of goods and services.

Information Asymmetries

When information is not equally available to all parties; lack of complete transparency. This results in an advantage to those individuals having full information.

Non-Competitive Markets

Markets where price setting (or quantity supplied) occurs without interaction between suppliers and demanders. Lack of competitive forces; free market is not the basis for trading.

Principal-Agent Problems

When a principal party cannot trust or motivate the agent party to conduct business that is not self-serving.

Public Goods

A good that is considered both non-rivalrous and non-exclusive.