****Market Failures****- not o■n the test• Market failure?• invisible hand produces disappointing or embarrassing results for society.Categories of Market Failure• Public Goods• Equity (fairness)• Externalities• Market PowerPublic GoodsImagine we are neighbors on a private road…-Non-exclusive consumption-Freerider• Remedies• Non-market allocation mechanism• One option: collect taxes to fund them• Another approach: private membershipEquityMarkets are blind to fairness • Remedies• Non-market allocation mechanism• Rationing, first-come-first-served• Price Controls (ceilings and floors)• 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 consumersExternalitiesTransaction impacts third partiesWhen social costs differ from private costs, the discrepancy is "invisible" to the specific producer• Remedies• Command-and-Control regulation• Pigouvian Taxes• Marketable PermitsMarket PowerThe invisible hand works best when markets are
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