Week 3 Discussion.docx - Running head MARKET SYSTEM FAILURE...

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Running head: MARKET SYSTEM FAILURE 1 Market System Failure Franchon Hurd South University ECO2071 – Principles of Microeconomics Dr. Joseph Brandt July 21, 2018
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Market System Failure Situation 1 : Firm A produces cement sifters. The process includes the melting of metals and chemicals which give the sifters strength. In the production process, waste is produced and released into the river that runs alongside of the plant. Economic production can cause environmental damage, some intentional and others are done accidentally as the pros and cons of the end-product, weren’t completely investigated. The spillover or negative externality from the production of these cement sifters will affect the efficiency of the market, as the market does not allocate resources on its own. The cost to people of manufacturing the cement sifters is larger than the cost to the company. For each unit of cement sifters that the company produces, the “social cost” of the goods exceed the private costs of the cement sifter producers plus the cost of the bystanders affected adversely by the waste in the river. To achieve the best outcome, would be to tax the cement sifter producers for each ton of sifters sold. The use of this tax is internalizing the externality, because it gives the buyers and sellers in the market a motivation to realize the outside effects of their actions. The population of the United
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  • Fall '14
  • EugeneGotwalt
  • Market failure, Externality

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