This excerpt from the New York Times on Thursday describes the impact of exposin

Question

This excerpt from the New York Times on Thursday describes the impact of exposing children to aging lead-based paint: “A 2005 study concluded that increasing a child’s blood lead level to 10 micrograms from 2.4 translated to a 3.9-point drop in I.Q. A 2015 study of Chicago elementary school students concluded that blood lead concentrations of five to nine micrograms explained up to 15 percent of failing grades in reading and math.” With public goods, common resources, and externalities in mind, what sort of market failure is this? Please explain.

Explanation / Answer

According to economists, there are different types of Market failure:

Productive and allocative inefficiency: Markets may fail to produce and allocate scarce resources in the most efficient way.

Monopoly power: Markets may fail to control the abuses of monopoly power.

Missing market: Markets may fail to form, resulting in a failure to meet a need or want, such as the need for public goods, such as defence, street lighting, and highways.

Incomplete markets: Markets may fail to produce enough merit goods, such as education and healthcare..

De-merit goods: Markets may also fail to control the manufacture and sale of goods like cigarettes and alcohol, which have less merit than consumers perceive.

Negative externalities: Consumers and producers may fail to take into account the effects of their actions on third-parties, such as car drivers, who may fail to take into account the traffic congestion they create for others. Third-parties are individuals, organisations, or communities indirectly benefiting or suffering as a result of the actions of consumers and producers attempting to pursue their own self interest.

Property rights: Markets work most effectively when consumers and producers are granted the right to own property, but in many cases property rights cannot easily be allocated to certain resources. Failure to assign property rights may limit the ability of markets to form.

Information failure: Markets may not provide enough information because, during a market transaction, it may not be in the interests of one party to provide full information to the other party.

Unstable markets: Sometimes markets become highly unstable, and a stable equilibrium may not be established, such as with certain agricultural markets, foreign exchange, and credit markets. Such volatility may require intervention.

Inequality: Markets may also fail to limit the size of the gap between income earners, the so-called income gap. Market transactions reward consumers and producers with incomes and profits, but these rewards may be concentrated in the hands of a few.

In the above question, the type of market failure which has been referred to is De- Merit Goods where markets may fail to control the manufacture and sale of goods like cigarettes, alcohol and other unwanted chemicals, which have less merit than consumers perceive and cause ill-effects to the society.

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