Transcript Market Failures

Market Failures
Chapter 7 Section 2
Public Goods
• Collectively consumed by everyone
• Examples: highways, flood control
measures, national defense, police and
fire protection
• Government normally has to supply these
Inadequate Competition
• Due to: mergers and acquisitions
• Inefficient Resource Allocation:
– If a firm controls the market-no reason to use
resources (money) carefully
• Higher Prices and Reduced Output:
– Artificial shortages
• Economic and Political Power:
– Bosses
• Both Sides of the Market
– Both on supply side and demand side
Inadequate Information
• Some information is easy to find: want
ads, sale prices, commercials
• If knowledge is important to buyers, but
hard to find=MARKET FAILURE
Resource Immobility
• CELL does not move to markets where
there is the most return
• Resource Mobility is an ideal situation for
a free enterprise economy, but is very
difficult to accomplish in the real world
Externalities
• Externality: an unintended side-effect that
can either benefit or harm a third party
• NEGATIVE Externality: harm, cost, or
inconvenience suffered by a third party
– Noise inconvenience due to airport expansion
• POSITIVE Externality: benefit received by
a third party
– Local restaurants benefit due to airport
expansion