ECN_203__8,9 & 10___Market_Power_and_Market_Failure(sp08)

ECN_203__8,9 & 10___Market_Power_and_Market_Failure(sp08) -...

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Chapter 8, 9 & 10: Market Problems Markets do not always work as efficiently as we have seen. Two general problems sometimes occur: 1. Market Power 2. Market Failure We will examine each of these problems and the potential government solutions.
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Market Power So far we have examined competitive markets-- no individual buyer or seller has any control over market. However, markets are not always competitive. Market Power -- a market structure where one or a small group of individuals control the market.
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Inefficiencies of Market Power A competitive society leads to an efficient outcome: 1. Society using all their endowment (productive resources) to achieve the highest level of production. 2. Each individual is rewarded with social product (production received) based on their own share of the endowment.
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Inefficiencies of Market Power Market power makes the economy less efficient. 1. Distributes a larger share of the social product (production) of the economy to the powerful. 2. Produces less than can be achieved with social endowment.
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Market Power Within Industries Monopoly -- industry with a single producer (e.g. Microsoft). Oligopoly -- industry with a small group of producers (e.g. airlines). Monopsony -- industry with one buyer (e.g. national defense industries). Oligopsony -- industry with a small group of producers controlling most of the market.
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Market Power in Labor Markets Consider a labor market with a very high demand for a certain attribute. Now consider individuals who have this
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This note was uploaded on 04/18/2008 for the course ECN 203 taught by Professor Evensky during the Spring '07 term at Syracuse.

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ECN_203__8,9 & 10___Market_Power_and_Market_Failure(sp08) -...

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