Figure 1.4 Education - a mixed good. Figure 1.4 represents the demands for all the educational benefits provided by the students consumption of educational services. The curve D1 is the students demand for educational services. DE is the summed demands of all others who receive benefits generated by the education of the student. The optimal level of education services is derived by equating marginal cost and price.
Asymmetric information is also a source of market failure.
Principal-agent problems illustrate this. In such organisations there is a strong tendency for behaviour such as shirking, featherbedding and embezzling by employees. Allocative inefficiencies arise in the costs involved in monitoring an agreement with an agent. The Coles Myer case is an example where a company executive violated his fiduciary duties by furnishing his home using materials and labour belonging to Coles Myer. The act was put in place to deliver benefits in the form of greater efficiency and enhanced welfare by promoting and ensuring competitive markets.