Answer:
Complete and partial market failure are two concepts in economics that describe different degrees of inefficiency in the allocation of resources in a market. They both indicate situations where markets do not function optimally, but they differ in terms of the extent of the failure and the consequences for resource allocation. Here's an explanation of each:
1. Complete Market Failure:
- Complete market failure occurs when a market is unable to allocate resources efficiently or at all.
- In this situation, the market fails to provide any goods or services, or it provides them in insufficient quantities.
- Complete market failure is often associated with public goods and natural monopolies. Public goods, such as clean air or national defense, are non-excludable and non-rivalrous, which means it's difficult to exclude anyone from their benefits, and one person's consumption does not reduce availability for others. Private markets typically fail to provide public goods because there is no incentive for individual firms to produce them, and they may be underproduced or not produced at all. Natural monopolies, on the other hand, occur when one firm can produce a good or service more efficiently than multiple firms, leading to a lack of competition and potential inefficiency.
2. Partial Market Failure:
- Partial market failure occurs when a market is functioning but fails to allocate resources efficiently. It represents a situation where the market does not achieve the ideal outcome but still provides some goods and services.
- In partial market failure, there may be issues like externalities, imperfect information, or market power (monopoly or oligopoly) that lead to suboptimal resource allocation.
- Examples of partial market failure include pollution externalities (where firms do not bear the full cost of pollution they create), information asymmetry (when buyers or sellers have incomplete information about a product), and monopolistic pricing (where a single firm can charge higher prices due to lack of competition).
In summary, the key difference between complete and partial market failure lies in the degree of market inefficiency. Complete market failure implies that the market does not provide a particular good or service at all, while partial market failure indicates that the market does provide the good or service but does so inefficiently or with negative externalities. Policymakers often intervene in both cases to improve resource allocation and overall economic welfare, but the nature of the intervention varies based on the specific circumstances of the failure.
Step-by-step explanation: