Page 352 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-23: Market Failure: Meaning and Sources

Common Property Resources have high degree of rivalry but are also non–excludable—This is shown Notes
by point C on the top right corner of Fig. 23.1.
Normal Goods are Rival and also Excludable—So it has high quantity degree of rivalry and degree of
jointness is low. It has shown by point N on top left corner in Fig. 23.1.

23.2 Excludable Goods and Market Failure
The products produced by independent firms should generally be excluded to get profit maximization.
The producer can prevent to use this product to the person who is not paying for it. If they do not do so
then they will get revenue loss as well as never get profit maximization.
However, the markets can be failures even after that. Excludability is a necessary condition for market
perfection but not a sufficient condition. Goods
According to Lipsey, “Excludability is a necessary which are excludable may not be rivalrous. The
condition for goods to be produced by a firm for examples are art galleries, museums, parks with
sale in the market.”
boundaries etc. By using this a person cannot
interrupt others. The question is that how can we
search efficient pricing system for these products? Various users will pay money as per their satisfaction
level for these products.
Self Assessment

Multiple choice questions:
4. The market failure is the condition which ........................ the perfect economical cost.
(a) available (b) agree (c) disagree (d) none of these
5. Public Goods have ........................ of non-excludability and non-rivalry.
(a) less (b) emotions (c) characteristic (d) none of these
6. Normal Goods are those products which do ........................ to both Rival and excludable.
(a) available (b) permanent (c) temporary (d) none of these
7. The producer can prevent to use this product to the person who is not ........................ for that.
(a) work (b) pay (c) expend (d) none of these
8. ‘Other products’ are those products which fulfill the excludable characteristics but not the rival
........................ .
(a) condition (b) real (c) characteristic (d) none of these

23.3 Excludable but Non-rivalrous Goods as a Source of Market Failure

We can say the difference between ‘normal goods’ and ‘other goods’. Normal Goods are Rival and
also Excludable. So these products cannot valid source for market failure. It is possible when producer
fulfills the condition of differentiate means they work on that point where AR = MC.
‘Other Products’ are those products which fulfill the excludable conditions without any rivalry
conditions. So these products are the source of market failure.

The market failure means the condition of market which is based upon the power of
demand and supply.

LOVELY PROFESSIONAL UNIVERSITY 345