Question

The residents of a complex in a Johannesburg suburb are being disturbed by the noise and activity from a night club that is located in the neighbourhood. Explain, using a diagram, the type of market failure that is being experienced in this suburb. Suggest what type of government intervention might be required to solve the problem.

Answer 1

The type of market failure is negative externality. This is because while producing or consuming a good, it is causing an effect to the third party. Here the night club noise is disturbing the residents of a complex in a Johannesburg suburb who are the third party.

The government should initiate policy on location of business and also fine clubs with producing high noise