week12-082 - Market Failure Markets maximize TS or net...

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1 Market Failure Markets maximize TS or net benefits Some policies lower TS (taxes, price floors and ceilings, tariffs…) Investigate when markets fail to maximize TS Producer Surplus Total Surplus P* q* Price Quantity, thousands per week 0 S=private cost D=private value Consumer Surplus Y X Optimal or Efficient Market
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2 Sources of Market Failure… 1. Inequitable distribution of resources 2. Market Power (non-competitive markets) 3. Public Goods 4. Externalities Market Failures: Externalities When a market outcome affects those other than the buyers and sellers in the market, side-effects called externalities , are created. Externalities cause markets to be inefficient, and thus fail to maximize total surplus. Externalities can be positive or negative Externalities can arise both in consumption and production Examples of Positive and Negative Externalities Smoking tobacco Bee hives Sound of helicopters Forest clearing Pollution Noisy parties Barking dogs Littering Flu vaccines Cleaning the CL Education Wind farms
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week12-082 - Market Failure Markets maximize TS or net...

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