Question

a) Explain two reasons why markets fail to provide social goods like street-lightings and parks

b) Explain the occurrence of asymmetric information in insurance markets.

c) To what extent are unequal incomes considered undesirable in a free market economy.

d) What is monopoly or market power ? To what extent monopoly power in the free market economy

is one form of market failure?  

Answer 1

When insuring a good, the insurer seems to have no way of knowing how well the consumer will care for the item. For example, if a customer failed to lock his bike properly, the insurer would refuse to insure it. Adverse selection is a problem that may arise as a result of this issue.