Missing Markets as an Explanation for Unaccounted Social Costs

The Market for Used Laptops

Consider a situation where an individual wants to borrow money from a peer, promising to use the funds responsibly and repay the loan promptly. The peer would be willing to lend if they could be certain of the borrower's future responsible behavior, but they ultimately refuse the loan. Which of the following best explains why a formal market for 'loans based on promises of future good behavior' fails to emerge in this scenario?

The Market for Residential Quiet

The Market for Employee Effort

A pharmaceutical company develops a new drug but decides not to sell it because the estimated production costs are higher than the price any consumer would be willing to pay. This situation is a classic example of a missing market.

Analysis of an Uninsurable Risk Market

For each scenario described, match it with the primary obstacle that prevents a formal market from emerging for the good or service in question.

The Case of 'Fired for Cause' Insurance

A student is willing to pay a significant premium for a tutoring service that guarantees they will receive an 'A' in their course. A tutor would be willing to offer this guarantee if they could be certain the student would exert the necessary effort outside of their sessions. Despite the potential for a mutually beneficial exchange, a formal market for 'guaranteed grades' does not exist. Which statement best analyzes the fundamental economic reason why this market is 'missing'?

A talented but unknown artist would be willing to pay a gallery a large sum of money if the gallery would guarantee to make them famous. The gallery would be willing to accept this payment if they could be absolutely certain of the artist's future commercial success and appeal. Despite this potential for a mutually beneficial agreement, a formal market for 'guaranteed artistic fame' does not exist. Which of the following statements best analyzes the fundamental reason for this market failure?