IBDP Economics Chapter 5 Notes

market failure


These notes have specially been curated by expert teachers to simplify and enlighten concepts given in IB Market Failure HL. The notes are comprehensive in nature and are sufficient to study the chapter in depth and one need not look for other resources beyond the notes provided on our website which can be accessed for free. The notes for Market Failure IBDP HL are available on our official website and can be downloaded for free. The material made available on Tychr’s website is available for all IBDP subjects and is specially curated after an extensive amount of effort to ensure that the notes are in consonance with the IB curriculum and are an amalgamation from various textbooks prescribed by the IBO.

In the chapter we study about market failure which occurs when the price mechanism fails to allocate resources efficiently. market failure is caused by externalities which are producers or consumers actions having positive or negative effects on the society and we will look at both negative and positive externalities of production and consumption. Negative production externalities occur when too much is being allocated to the production of the goods and this can be corrected through government regulations, market based policies, tax on pollutants and tradable permits. Negative consumption externalities are spillover costs generated and received in the consumption of goods and services and this can be corrected through government regulations, advertising and market based policies.

Positive production externalities refers to external benefits created by producers and these can be aided through government provisions and subsidies. Positive consumption externalities refers to external benefits created by consumers which benefits in our society and these again can be aided through legislation, advertising, direct government provision and subsidies. This chapter also explains the difference between private and public goods and explains how public goods are non rivalrous and non excludable in nature. The chapter also talks about the threats to sustainability due to market failures and the corrections for it: clean technology, international cooperation, responsible government reduction in pollution are some concepts which can make the society more sustainable. This chapter basically focuses on the importance of the forces of demand and supply and their positive and negative effects on the society as a whole.