ECON 1000 Study Guide - Quiz Guide: Market Failure, Externality, Allocative Efficiency

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Bobby McPeterson

Document Summary

Market failure occurs when a market fails to efficiently allocate scare resources resulting in a loss of economic and social welfare, resulting in the market over or under producing a certain good. Regulations would include laws that restrict the consumption of alcohol. More often in society, the awareness of alcohol in general has risen. Children get education in school about alcohol, its effects and possible consequences, preventing complete ignorance. Furthermore "responsible drinking" is encouraged by various campaigns as well as by the producers of the alcoholic drink. Alcohol is a demerit good with a negative externality of consumption. Alcohol is known to compromise a drinker"s rational ability to think and when consumed in an overdose can be fatal. Most users know this, making it a demerit good. On top of that drinkers may become violent and do things under the influence of alcohol affecting a 3rd party.