Market Failures not onn the test cid 127 Market failure invisible hand produces disappointing or embarrassing results for society Categories of Market Failure Public Goods Equity fairness Externalities cid 127 Market Power Public Goods Freerider Remedies Imagine we are neighbors on a private road Non exclusive consumption Non market allocation mechanism cid 127 One option collect taxes to fund them Another approach private membership Equity Markets are blind to fairness Remedies Non market allocation mechanism Rationing first come first served Price Controls ceilings and floors Externalities Transaction impacts third parties Remedies Command and Control regulation Pigouvian Taxes cid 127 Marketable Permits Market Power The invisible hand works best when markets are competitive Floors are above equilibrium supply side is treated unfairly cause equilibrium is too low keeps prices higher provide relief for producers Ceilings are below equilibrium demand side is treated unfairly cause equilibrium is too high keeps prices lower provide relief for consumers When social costs differ from private costs the discrepancy is invisible to the specific producer cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127
View Full Document
Unlocking...